Why people choose negative expected return assets - an empirical examination of a utility theoretic explanation

Nalinaksha Bhattacharyya and Thomas Garrett

No 2006-014, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Using a theoretical extension of the Friedman and Savage (1948) utility function developed in Bhattacharyya (2003), we predict that for financial assets with negative expected returns, expected return will be a declining and convex function of skewness. Using a sample of U.S. state lottery games, we find that our theoretical conclusions are supported by the data. Our results have external validity as they also hold for an alternative and more aggregated sample of lottery game data.

Date: 2006
New Economics Papers: this item is included in nep-fmk and nep-upt
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Journal Article: Why people choose negative expected return assets - an empirical examination of a utility theoretic explanation (2008)
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DOI: 10.20955/wp.2006.014

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