The Law of Large Numbers and the Attractiveness of Compound Gambles

Soo Hong Chew and Larry Epstein

Journal of Risk and Uncertainty, 1988, vol. 1, issue 1, 125-32

Abstract: A compound of many independent replicas of a gamble may be chosen by a risk averter even if the single gamble would be rejected given any initial wealth level. Samuelson has shown that such choices are impossible if the expected utility theory of preference is adopted. but they are consistent with more general theories of preference. Consequently, the intuition suggested by the law of large numbers can be supported. Copyright 1988 by Kluwer Academic Publishers

Date: 1988
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