A Theory of the Gambling Effect

32 Pages Posted: 31 Dec 2000

See all articles by Enrico Diecidue

Enrico Diecidue

INSEAD – Decision Sciences

Ulrich Schmidt

University of Kiel - Institute of Economics

Peter P. Wakker

University of Amsterdam - Amsterdam School of Economics (ASE)

Abstract

This paper presents a model for the "gambling effect," i.e., the effect that risky gambles are evaluated differently than riskless outcomes due to an intrinsic utility (or disutility) of gambling.The model turns out to violate stochastic dominance and therefore its primary applications will be descriptive. It sheds new light on empirical observations of risk attitudes and provides new insights into the distinction between risky and riskless utility.

Keywords: gambling, non expected utility theory, risk aversion

JEL Classification: C60, D81

Suggested Citation

Diecidue, Enrico and Schmidt, Ulrich and Wakker, Peter P., A Theory of the Gambling Effect. Journal of Risk and Uncertainty (2004) 29, 241-259; CentER Working Paper No. 75. Available at SSRN: https://ssrn.com/abstract=244664 or http://dx.doi.org/10.2139/ssrn.244664

Enrico Diecidue

INSEAD – Decision Sciences ( email )

France

Ulrich Schmidt

University of Kiel - Institute of Economics ( email )

Olshausenstrasse 40
24098 Kiel, 24098
Germany

Peter P. Wakker (Contact Author)

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Roetersstraat 11
Amsterdam, North Holland 1018 WB
Netherlands

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