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On the Optimal Design of Lotteries

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Quiggin, John

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Abstract

In recent years, the expected utility model of choice under risk has been generalized to cope with phenomena such as probability weighting. In the present paper, one such generalized approach, the rank-dependent expected utility model, is applied to the problem of lottery gambling. The model is used to derive an optimal prize structure for lotteries, ivolving a few large prizes and a large number of small prizes. Other forms of gambling, such as racetrack betting, are discussed in the light of this result. Copyright 1991 by The London School of Economics and Political Science.

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Publisher Info
Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 58 (1991)
Issue (Month): 229 (February)
Pages: 1-16
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Handle: RePEc:bla:econom:v:58:y:1991:i:229:p:1-16

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  1. Thomas A. Garrett, 2001. "An International Comparison and Analysis of Lotteries and the Distribution of Lottery Expenditures," International Review of Applied Economics, Taylor and Francis Journals, vol. 15(2), pages 213-227, April. [Downloadable!] (restricted)
  2. Lisa Farrell & Roger Hartley, . "Can Expected Utility Theory Explain Gambling?," Discussion Papers in Public Sector Economics 00/8, Department of Economics, University of Leicester. [Downloadable!]
    Other versions:
  3. Chew Soo Hong & Guofu Tan, 2004. "The Market for Sweekstakes," IEPR Working Papers 04.4, Institute of Economic Policy Research (IEPR). [Downloadable!]
  4. Thomas A. Garrett & Nalinaksha Bhattacharyya, 2006. "Why people choose negative expected return assets - an empirical examination of a utility theoretic explanation," Working Papers 2006-014, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  5. Matthew Ryan & Rhema Vaithianathan, 2003. "Adverse Selection and Insurance Contracting: A Rank-Dependent Utility Analysis," Contributions to Theoretical Economics, Berkeley Electronic Press, vol. 3(1), pages 1074-1074. [Downloadable!] (restricted)
  6. Thomas A. Garrett & Cletus C. Coughlin, 2007. "Inter-temporal differences in the income elasticity of demand for lottery tickets," Working Papers 2007-042, Federal Reserve Bank of St. Louis. [Downloadable!]
  7. Walther Herbert, 2005. "Optimal Taxation of Gambling and Lotto," Working Papers geewp47, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness. [Downloadable!]
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