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On the Necessity of Using Lottery Qualities

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  • Yves Alarie
  • Georges Dionne

Abstract

The aim of this paper is to propose a model of decision-making for lotteries. The key element of the theory is the use of lottery qualities. Qualities allow the derivation of optimal decision-making processes and are taken explicitly into account for lottery evaluation. Our contribution explains the major violations of the expected utility theory for decisions on two-point lotteries and shows the necessity of giving explicit consideration to the lottery qualities.

Suggested Citation

  • Yves Alarie & Georges Dionne, 2004. "On the Necessity of Using Lottery Qualities," Cahiers de recherche 0415, CIRPEE.
    • Handle: RePEc:lvl:lacicr:0415
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    References listed on IDEAS

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    1. Alarie, Yves & Dionne, Georges, 2001. "Lottery Decisions and Probability Weighting Function," Journal of Risk and Uncertainty, Springer, vol. 22(1), pages 21-33, January.
    2. 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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    4. Luce, R Duncan & Mellers, Barbara A & Chang, Shi-jie, 1993. "Is Choice the Correct Primitive? On Using Certainty Equivalents and Reference Levels to Predict Choices among Gambles," Journal of Risk and Uncertainty, Springer, vol. 6(2), pages 115-143, April.
    5. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    6. Ranyard, Rob, 1995. "Reversals of Preference between Compound and Simple Risks: The Role of Editing Heuristics," Journal of Risk and Uncertainty, Springer, vol. 11(2), pages 159-175, September.
    7. McFadden, Daniel, 1999. "Rationality for Economists?," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 73-105, December.
    8. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-217, March.
    9. Bostic, Raphael & Herrnstein, R. J. & Luce, R. Duncan, 1990. "The effect on the preference-reversal phenomenon of using choice indifferences," Journal of Economic Behavior & Organization, Elsevier, vol. 13(2), pages 193-212, March.
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    11. Rubinstein, Ariel, 1988. "Similarity and decision-making under risk (is there a utility theory resolution to the Allais paradox?)," Journal of Economic Theory, Elsevier, vol. 46(1), pages 145-153, October.
    12. Leland, Jonathan W, 1994. "Generalized Similarity Judgments: An Alternative Explanation for Choice Anomalies," Journal of Risk and Uncertainty, Springer, vol. 9(2), pages 151-172, October.
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    Cited by:

    1. Yves Alarie & Georges Dionne, 2006. "Lottery qualities," Journal of Risk and Uncertainty, Springer, vol. 32(3), pages 195-216, May.

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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