Agents' Models and Participation in a Gambling Market
This paper explains the economics of gambling behavior within a framework which explicitly incorporates agents' models and attitude toward risk. Within this framework, we characterize the formation of subjective probabilities, the equilibrium in a pointspread gambling market, and how the diversity in beliefs opens up the market to more risk-averse individuals. In addition, we derive the individual's reservation pointspread as a function of his degree of risk aversion.
Volume (Year): 21 (1995)
Issue (Month): 2 (Spring)
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