Wagering on more than one outcome in an event in Cumulative Prospect Theory and Rank Dependent Utility

Peel, David Alan (2017) Wagering on more than one outcome in an event in Cumulative Prospect Theory and Rank Dependent Utility. Economics Letters, 154. pp. 45-47. ISSN 0165-1765

[thumbnail of newHedge Wagering in CPT and RDU Jan17]

Preview

PDF (newHedge Wagering in CPT and RDU Jan17)
newHedge_Wagering_in_CPT_and_RDU_Jan17.pdf - Accepted Version
Available under License Creative Commons Attribution-NonCommercial-NoDerivs.
Download (136kB)

Abstract

In this letter we illustrate a previously unrecognised implication of Cumulative Prospect Theory and Rank Dependent Utility. We demonstrate that the representative individual in both models will often engage in wagering on more than one outcome in an event. For instance when playing European roulette the representative agents in CPT or RDU will always optimally wager on more than one outcome. This implication contrasts with expected utility models of wagering based on risk-seeking preferences due to the assumption of a convex segment of the utility function.

Item Type:

Journal Article

Journal or Publication Title:

Economics Letters

Additional Information:

This is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economics Letters, 154, 2017 DOI: 10.1016/j.econlet.2017.02.005

Uncontrolled Keywords:

/dk/atira/pure/subjectarea/asjc/2000/2003

Subjects:

?? cumulative prospect theory hedge wageringrank dependent utility,financeeconomics and econometricsc72d84d80c92 ??

Departments:

Lancaster University Management School > Economics

ID Code:

84632

Deposited By:

ep_importer_pure

Deposited On:

08 Feb 2017 11:52

Refereed?:

Yes

Published?:

Published

Last Modified:

05 Nov 2024 01:18

URI:

https://eprints.lancs.ac.uk/id/eprint/84632