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  • newHedge Wagering in CPT and RDU Jan17

    Rights statement: This is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economics Letters, 154, 2017 DOI: 10.1016/j.econlet.2017.02.005

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Wagering on more than one outcome in an event in Cumulative Prospect Theory and Rank Dependent Utility

Research output: Contribution to journalJournal articlepeer-review

Published
<mark>Journal publication date</mark>05/2017
<mark>Journal</mark>Economics Letters
Volume154
Number of pages3
Pages (from-to)45-47
Publication StatusPublished
Early online date7/02/17
<mark>Original language</mark>English

Abstract

In this letter we illustrate a previously unrecognised implication of Cumulative Prospect Theory and Rank Dependent Utility. We demonstrate that the representative individual in both models will often engage in wagering on more than one outcome in an event. For instance when playing European roulette the representative agents in CPT or RDU will always optimally wager on more than one outcome. This implication contrasts with expected utility models of wagering based on risk-seeking preferences due to the assumption of a convex segment of the utility function.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economics Letters, 154, 2017 DOI: 10.1016/j.econlet.2017.02.005