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2010 | 11(XI) | nr 1 | 223--253
Tytuł artykułu

Buying and Selling Price for Risky Lotteries and Expected Utility Theory without Consequentialism

Treść / Zawartość
Warianty tytułu
Języki publikacji
EN
Abstrakty
EN
In this paper I show that within expected utility large buying and selling price gap is possible and [R] paradox may be resolved if only initial wealth is allowed to be small. It implies giving up the doctrine of consequentialism which may be reduced to requiring initial wealth to be total lifetime wealth of the decision maker. Still, even when initial wealth is allowed to be small and interpreted narrowly as gambling wealth, classic preference reversal is not possible within expected utility. I show that only another kind of reversal which I call preference reversal B is possible within expected utility. Preference reversal B occurs when buying price for one lottery is higher than for another, but the latter lottery is chosen in a direct choice. I demonstrate that classic preference reversal is susceptible to arbitrage whereas preference reversal B is not which suggests that the latter reversal is more rational. (original abstract)
Słowa kluczowe
PL
Ceny   Hazard  
EN
Prices   Hazard  
Twórcy
  • European University Institute, Florence
Bibliografia
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  • Palacios-Huerta I., R. Serrano (2006). Rejecting small gambles under expected utility. Economics Letters 91, 250-259.
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  • Raiffa H. (1968). Decision Analysis: Introductory Lectures on Choices Under Uncertainty. Addison-Wesley.
  • Rubinstein A. (2002). Comments on the risk and time preferences in economics. Tel Aviv University Working Paper.
  • Rubinstein A. (2009). Lecture Notes in Microeconomic Theory: The Economic Agent. Princeton University Press.
  • Safra Z., U. Segal (2008). Calibration results for non-expected utility theories. Econometrica 76, 1143-1166.
  • Schmidt U., C. Starmer, R. Sugden (2008). Third-generation prospect theory. Journal of Risk and Uncertainty 36, 203-223.
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  • von Neumann J., O. Morgenstern (1944). Theory of games and economic behavior. Princeton University Press.
Typ dokumentu
Bibliografia
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Identyfikator YADDA
bwmeta1.element.ekon-element-000171237393

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