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  • EB-16-V36-I2-P67

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Loss Aversion and Ruinous Optimal Wagering in the Markowitz Model of Non-Expected Utility

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Published
<mark>Journal publication date</mark>14/04/2016
<mark>Journal</mark>Economics Bulletin
Issue number2
Volume36
Number of pages8
Pages (from-to)688-695
Publication StatusPublished
<mark>Original language</mark>English

Abstract

The purpose in this note is to demonstrate that the non-expected utility model of Markowitz implies that agents can obtain maximum expected utility from wagering all of their wealth on actuarialy unfair high probability outcomes. In order to remove this property it is necessary to assume that loss aversion tends to infinity as stake size as a proportion of wealth approaches unity.