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Revealed preference analysis of expected utility maximization under prize-probability trade-offs

Laurens Cherchye (), Thomas Demuynck (), Bram De Rock () and Mikhail Freer

Journal of Mathematical Economics, 2022, vol. 99, issue C

Abstract: We provide a revealed preference characterization of expected utility maximization in binary lotteries with prize-probability trade-offs. We start by characterizing optimizing behavior when the empirical analyst exactly knows the utility function or the probability function of winning. Next, we consider the situation with both the probability function and the utility function unknown. In this case utility maximization has empirical content when imposing the mild shape restriction that at least one of these functions is log-concave.

Keywords: Expected utility maximization; Prize-probability trade-offs; Revealed preference characterization; Testable implications (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jmateco.2021.102607

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