Herbert Walther (Vienna University of Economics and Business Administration)
Abstract
An intertemporal state dependent expected utility model (generating S-shaped probability weighting by incorporating anticipated flows of utility from elation and disappointment) is used as a framework for analyzing the demand for various gambles. The analysis is extended to compare pari-mutuel bets under competitive and monopolistic conditions. The following conclusions can be drawn: (1) A monopoly fosters the `skeweness' of the pari-mutual bet: In equilibrium, the wager and the demand for probability to win are lower, while the wager per unit of probability to win and the prize are higher. (3) If prize expectations are endogenous, rollovers might be a necessary device to prevent instability. (4) Rational gamblers will be indifferent between `wager tax' and `bank holder' type methods of raising monopoly profits.
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Volume (Year): 2 (2008) Issue (Month): 2 (September) Pages: 61-78 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Recreation; Tourism D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
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