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Estimating Preferences under Risk: The Case of Racetrack Bettors

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Author Info
Jullien, B.
Salanie, B.

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Abstract

We investigate in this paper the attitudes towards risk of bettors in British horse races. The model we use allows us to go beyond the expected utility framework and to explore various alternative proposals by estimating a multinomial model on a 34443-race dataset. We find that rank-dependent utility models do not fit the data better than expected utility models. On the other hand, cumulative prospect theory has higher explanatory power. Our preferred estimates suggest a pattern of local risk-aversion similar to that proposed by Friedman-Savage.

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Publisher Info
Paper provided by Institut National de la Statistique et des Etudes Economiques- in its series Papers with number 9739.

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Length: 45 pages
Date of creation: 1997
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Handle: RePEc:fth:inseep:9739

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Keywords: RISK UTILITY FUNCTION RISK AVERSION

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications

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  1. JULLIEN, Bruno & SALANIÉ, Bernard, 2005. "Empirical Evidence on the Preferences of Racetrack Bettors," IDEI Working Papers 178, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  2. Steven D. Levitt, 2003. "How Do Markets Function? An Empirical Analysis of Gambling on the National Football League," NBER Working Papers 9422, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Frédéric KOESSLER & Anthony ZIEGELMEYER & Marie-Hélène BROIHANNE, 2002. "The Favorite-Longshot Bias in Sequential parimutuel Betting with Non-Expected Utility Players," Working Papers of BETA 2002-12, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  4. Raj Chetty & Adam Szeidl, 2006. "Consumption Commitments and Risk Preferences," NBER Working Papers 12467, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Hernando Zuleta, 2006. "Poor People and Risky Business," DOCUMENTOS DE TRABAJO 003356, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  6. Alan Beggs & Kathryn Graddy, 2005. "Testing for Reference Dependence: An Application to the Art Market," Economics Series Working Papers 228, University of Oxford, Department of Economics. [Downloadable!]
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  7. Antoni Bosch-Domènech & Joaquim Silvestre, 2003. "Do the Wealthy Risk More Money? An Experimental Comparison," Economics Working Papers 692, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005. [Downloadable!]
  8. Frederic Koessler & Ch. Noussair & A. Ziegelmeyer, 2005. "Individual Behavior and Beliefs in Experimental Parimutuel Betting Markets," THEMA Working Papers 2005-08, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  9. P Brooks & H Zank, 2004. "Attitudes on Gain and Loss Lotteries: A Simple Experiment," The School of Economics Discussion Paper Series 0402, Economics, The University of Manchester. [Downloadable!]
  10. Les Coleman, 2004. "New light on the longshot bias," Applied Economics, Taylor and Francis Journals, vol. 36(4), pages 315-326, March. [Downloadable!] (restricted)
  11. David Peel & Michael Cain & D Law, 2005. "Cumulative prospect theory and gambling," Working Papers 002459, Lancaster University Management School, Economics Department. [Downloadable!]
  12. Colin Camerer, 1998. "Bounded Rationality in Individual Decision Making," Experimental Economics, Springer, vol. 1(2), pages 163-183, September. [Downloadable!] (restricted)
  13. Camerer, Colin F., 1998. "Prospect Theory in the Wild: Evidence From the Field," Working Papers 1037, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  14. Einat Neuman & Shoshana Neuman, 2007. "Reference-Dependent Preferences and Loss Aversion: A Discrete Choice Experiment in the Health-Care Sector," IZA Discussion Papers 3238, Institute for the Study of Labor (IZA). [Downloadable!]
  15. Marco Ottaviani & Peter Norman Sørensen, 2006. "Noise, Information, and the Favorite-Longshot Bias," FRU Working Papers 2006/04, University of Copenhagen. Department of Economics. Finance Research Unit. [Downloadable!]
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  16. Frédéric Koessler & Charles Noussair & Anthony Ziegelmeyer, 2007. "Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets," Discussion Papers on Strategic Interaction 2005-12, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
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  17. Alma Cohen & Liran Einav, 2005. "Estimating Risk Preferences from Deductible Choice," NBER Working Papers 11461, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Roger Hartley & Lisa Farrell, 2002. "Can Expected Utility Theory Explain Gambling?," American Economic Review, American Economic Association, vol. 92(3), pages 613-624, June. [Downloadable!] (restricted)
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  19. Klaassen, Franc J.G.M. & Magnus, Jan R., 2006. "Are economic agents succesful optimizers? : an analysis through strategy in tennis," Discussion Paper 52, Tilburg University, Center for Economic Research. [Downloadable!]
  20. Chew Soo Hong & Guofu Tan, 2004. "The Market for Sweekstakes," IEPR Working Papers 04.4, Institute of Economic Policy Research (IEPR). [Downloadable!]
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