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Skewness as an explanation of gambling in cumulative prospect theory

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  • D. Law
  • D. A. Peel

Abstract

Skewness of return has been suggested as a reason why agents might choose to gamble, ceteris paribus, in cumulative prospect theory (CPT). We investigate the relationship between moments of return in two models where agents choices over uncertain outcomes are determined as in CPT. We illustrate via examples that in CPT theory, as with expected utility theory, propositions that agents have a preference for skewness may be invalid.

Suggested Citation

  • D. Law & D. A. Peel, 2009. "Skewness as an explanation of gambling in cumulative prospect theory," Applied Economics, Taylor & Francis Journals, vol. 41(6), pages 685-689.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:6:p:685-689
    DOI: 10.1080/00036840601007476
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    Cited by:

    1. Mao-Wei Hung & Jr-Yan Wang, 2011. "Loss aversion and the term structure of interest rates," Applied Economics, Taylor & Francis Journals, vol. 43(29), pages 4623-4640.
    2. Feess, Eberhard & Müller, Helge & Schumacher, Christoph, 2016. "Estimating risk preferences of bettors with different bet sizes," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1102-1112.
    3. David A. Peel & Davind Law, 2009. "An Explanation of Optimal Each-Way Bets based on Non-Expected Utility Theory," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 3(2), pages 15-35, September.

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