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Certainty Equivalent Representation of Binary Gambles That Are Decomposed into Risky and Sure Parts

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  • Yutaka Matsushita

    ()
    (Kanazawa Institute of Technology, Japan)

Abstract

This paper develops a weighted additive model for certainty equivalents of binary gambles with a segregation form, in the sense that they are decomposition into sure gains and risky gambles. The effect of adding a sure gain to the preference for a risky gamble is considered to be evaluated by weight. First, a certainty equivalent of every gamble is decomposed into the addition of a sure gain and a conditional certainty equivalent. Second, two new conditions are provided to express the conditional certainty equivalent as a multiplicative form by weight.

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Bibliographic Info

Article provided by Better Advances Press, Canada in its journal Review of Economics & Finance.

Volume (Year): 2 (2012)
Issue (Month): (May)
Pages: 65-75

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Handle: RePEc:bap:journl:120206

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Related research

Keywords: Segregation; Certainty equivalent; Utility of gambling; Risk attitude;

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  1. Peter Fishburn, 1980. "A simple model for the utility of gambling," Psychometrika, Springer, Springer, vol. 45(4), pages 435-448, December.
  2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  3. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, Econometric Society, vol. 55(1), pages 95-115, January.
  4. Enrico Diecidue & Ulrich Schmidt & Peter P. Wakker, 2004. "The Utility of Gambling Reconsidered," Journal of Risk and Uncertainty, Springer, Springer, vol. 29(3), pages 241-259, December.
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