Simultaneous Risk Aversion and Risk-Seeking Behavior in an Expected Utility Framework with Optimism
10 Pages Posted: 19 Apr 2019 Last revised: 14 Oct 2019
Date Written: April 15, 2019
Risk-averse optimism provides a parsimonious explanation of simultaneous purchase of unfairly-priced insurance and unfairly-priced lottery tickets. The simplicity of this approach contrasts with the complexity of prospect theory.
Keywords: optimism, prospect theory, Friedman-Savage utility, insurance, gambling, lotteries
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