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The Role of Time in Making Risky Decisions and the Function of Choice

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  • Valerii Salov

Abstract

The prospects of Kahneman and Tversky, Mega Million and Powerball lotteries, St. Petersburg paradox, premature profits and growing losses criticized by Livermore are reviewed under an angle of view comparing mathematical expectations with awards received. Original prospects have been formulated as a one time opportunity. An award value depends on the number of times the game is played. The random sample mean is discussed as a universal award. The role of time in making a risky decision is important as long as the frequency of games and playing time affect their number. A function of choice mapping properties of two-point random variables to fractions of respondents choosing them is proposed.

Suggested Citation

  • Valerii Salov, 2015. "The Role of Time in Making Risky Decisions and the Function of Choice," Papers 1512.08792, arXiv.org.
    • Handle: RePEc:arx:papers:1512.08792
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    References listed on IDEAS

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    4. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
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    6. Ole Peters, 2010. "The time resolution of the St. Petersburg paradox," Papers 1011.4404, arXiv.org, revised Mar 2011.
    7. Ole Peters, 2011. "Menger 1934 revisited," Papers 1110.1578, arXiv.org.
    8. Varma, Jayanth R., 2013. "Time Resolution of the St. Petersburg Paradox: A Rebuttal," IIMA Working Papers WP2013-05-09, Indian Institute of Management Ahmedabad, Research and Publication Department.
    9. Valerii Salov, 2013. "Optimal Trading Strategies as Measures of Market Disequilibrium," Papers 1312.2004, arXiv.org.
    10. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    11. Kahneman, Daniel, 2002. "Maps of Bounded Rationality," Nobel Prize in Economics documents 2002-4, Nobel Prize Committee.
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    Cited by:

    1. Valerii Salov, 2017. "The Wandering of Corn," Papers 1704.01179, arXiv.org.
    2. Valerii Salov, 2017. "Trading Strategies with Position Limits," Papers 1712.07649, arXiv.org.

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