Loss Aversion and Ruinous Optimal Wagering in the Markowitz Model of Non-Expected Utility

Peel, David Alan and Law, David (2016) Loss Aversion and Ruinous Optimal Wagering in the Markowitz Model of Non-Expected Utility. Economics Bulletin, 36 (2). pp. 688-695. ISSN 1545-2921

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Abstract

The purpose in this note is to demonstrate that the non-expected utility model of Markowitz implies that agents can obtain maximum expected utility from wagering all of their wealth on actuarialy unfair high probability outcomes. In order to remove this property it is necessary to assume that loss aversion tends to infinity as stake size as a proportion of wealth approaches unity.

Item Type:
Journal Article
Journal or Publication Title:
Economics Bulletin
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000
Subjects:
ID Code:
84727
Deposited By:
Deposited On:
16 Feb 2017 17:00
Refereed?:
Yes
Published?:
Published
Last Modified:
09 Jul 2020 05:06