Can expected utility theory explain gambling?

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Title: Can expected utility theory explain gambling?
Authors: Hartley, Roger
Farrell, Lisa
Permanent link: http://hdl.handle.net/10197/539
Date: Jun-2002
Abstract: We investigate the ability of expected utility theory to account for simultaneous gambling and insurance. Contrary to a previous claim that borrowing and lending in perfect capital markets removes the demand for gambles, we show expected utility theory with nonconcave utility functions can explain gambling. When the rates of interest and time preference are equal, agents seek to gamble unless income falls in a finite set of values. When they differ, there is a range of incomes where gambles are desired. Different borrowing and lending rates can account for persistent gambling provided the rates span the rate of time preference.
Type of material: Journal Article
Publisher: American Economic Association
Copyright (published version): 2002 American Economic Association
Keywords: Expected utility theory;Gambling;Time preference
Subject LCSH: Utility theory
Time and economic reactions
Gambling
DOI: 10.1257/00028280260136426
Language: en
Status of Item: Peer reviewed
Appears in Collections:Geary Institute Research Collection
Economics Research Collection

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