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Wagering on more than one outcome in an event in Cumulative Prospect Theory and Rank Dependent Utility

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  • Peel, D.A.

Abstract

•We consider betting on more than one outcome to in an event in Cumulative Prospect Theory and Rank Dependent Utility.•The representative individuals will typically prefer betting on more than one outcome in European Roulette.•Simultaneous win and lay wagers are likely in Rank Dependent Utility but not Cumulative Prospect Theory.

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  • Peel, D.A., 2017. "Wagering on more than one outcome in an event in Cumulative Prospect Theory and Rank Dependent Utility," Economics Letters, Elsevier, vol. 154(C), pages 45-47.
    • Handle: RePEc:eee:ecolet:v:154:y:2017:i:c:p:45-47
    DOI: 10.1016/j.econlet.2017.02.005
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    References listed on IDEAS

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    1. Marc Rieger & Mei Wang, 2006. "Cumulative prospect theory and the St. Petersburg paradox," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 665-679, August.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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    6. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
    7. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
    8. Kobberling, Veronika & Wakker, Peter P., 2005. "An index of loss aversion," Journal of Economic Theory, Elsevier, vol. 122(1), pages 119-131, May.
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    Cited by:

    1. Georgalos, Konstantinos & Paya, Ivan & Peel, David A., 2021. "On the contribution of the Markowitz model of utility to explain risky choice in experimental research," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 527-543.
    2. Gustav Axén & Dominic Cortis, 2020. "Hedging on Betting Markets," Risks, MDPI, vol. 8(3), pages 1-14, August.
    3. Gürtler, Marc & Stolpe, Julia, 2017. "Cumulative Prospect Theory for piecewise continuous distributions," Finance Research Letters, Elsevier, vol. 22(C), pages 5-10.

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