It is well known that the parametric version of Cumulative Prospect theory (CPT) proposed by Kahneman and Tversky (1979) and Tversky and Kahneman (1992) (KT) can explain gambling at actuarially unfair odds on long shots due to the over weighting of small probabilities. However betting on odds favorites appears problematic. We demonstrate using a parametric model of Cumulative Prospect Theory that nests that of Kahneman and Tversky that if agents are risk averse enough over gains and risk-seeking enough over losses then they will gamble on odds on chances at actuarially unfair odds even when there is no probability distortion. This previously unappreciated fact is interesting since many experimental results suggest that some respondents are very risk averse over gains.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.
Volume (Year): 4 (2007) Issue (Month): 26 () Pages: 1-10 Download reference. The following formats are available: HTML,
plain text,
BibTeX,
RIS (EndNote),
ReDIF
Handle: RePEc:ebl:ecbull:v:4:y:2007:i:26:p:1-10
Contact details of provider: Postal: Economics Bulletin, Department of Economics, 414 Calhoun Hall, Vanderbilt University, Nashville TN 37235, USA Phone: 615-322-2920 Fax: 615-343-8495 Email: Web page: http://www.economicsbulletin.com
For technical questions regarding this item, or to correct its listing, contact: (John Conley).