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Certainty Equivalent Representation of Binary Gambles That Are Decomposed into Risky and Sure Parts

  • Yutaka Matsushita

    ()

    (Kanazawa Institute of Technology, Japan)

This paper develops a weighted additive model for certainty equivalents of binary gambles with a segregation form, in the sense that they are decomposition into sure gains and risky gambles. The effect of adding a sure gain to the preference for a risky gamble is considered to be evaluated by weight. First, a certainty equivalent of every gamble is decomposed into the addition of a sure gain and a conditional certainty equivalent. Second, two new conditions are provided to express the conditional certainty equivalent as a multiplicative form by weight.

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Article provided by Better Advances Press, Canada in its journal Review of Economics & Finance.

Volume (Year): 2 (2012)
Issue (Month): (May)
Pages: 65-75

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Handle: RePEc:bap:journl:120206
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  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  2. Enrico Diecidue & Ulrich Schmidt & Peter P. Wakker, 2004. "The Utility of Gambling Reconsidered," Journal of Risk and Uncertainty, Springer, vol. 29(3), pages 241-259, December.
  3. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
  4. Peter Fishburn, 1980. "A simple model for the utility of gambling," Psychometrika, Springer, vol. 45(4), pages 435-448, December.
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