AbstractThe aim of this paper is to propose a model of decision-making for lotteries. Lottery qualities are the key concepts of the theory. Qualities allow the derivation of optimal decision-making processes and are taken explicitly into account for lottery evaluation. Our contribution explains the major violations of the expected utility theory for decisions on two-point lotteries and shows the necessity of giving explicit consideration to lottery qualities. Judged certainty equivalent and choice certainty equivalent concepts are discussed in detail along with the comparison of lotteries. Examples are provided by using different test results in the literature. Copyright Springer Science + Business Media, LLC 2006
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Bibliographic InfoArticle provided by Springer in its journal Journal of Risk and Uncertainty.
Volume (Year): 32 (2006)
Issue (Month): 3 (May)
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Web page: http://www.springerlink.com/link.asp?id=100299
Lottery choice; Common ratio; Preference reversal; Pricing; Lottery test; Cognitive process; Certainty equivalent;
Other versions of this item:JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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