Estimating Preferences Under Risk: The Case of Racetrack Bettors

35 Pages Posted: 10 Sep 1998

See all articles by Bruno Jullien

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Bernard Salanie

Columbia University - Graduate School of Arts and Sciences - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

We investigate in this paper the attitudes toward risk of bettors in British horse races. The model we use allows us to go beyond the expected utility framework and to explore various alternative proposals by estimating a multinomial model on a 34443-race data set. We find that rank-dependent utility models do not fit the data better than expected utility models. On the other hand, cumulative prospect theory has higher explanatory power. Our preferred estimates suggest a pattern of local risk-aversion similar to that proposed by Friedman-Savage.

JEL Classification: D81

Suggested Citation

Jullien, Bruno and Salanie, Bernard, Estimating Preferences Under Risk: The Case of Racetrack Bettors. Available at SSRN: https://ssrn.com/abstract=113709 or http://dx.doi.org/10.2139/ssrn.113709

Bruno Jullien (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Bernard Salanie

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany