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Lottery qualities

Yves Alarie and Georges Dionne

Journal of Risk and Uncertainty, 2006, vol. 32, issue 3, 195-216

Abstract: The aim of this paper is to propose a model of decision-making for lotteries. Lottery qualities are the key concepts of the theory. Qualities allow the derivation of optimal decision-making processes and are taken explicitly into account for lottery evaluation. Our contribution explains the major violations of the expected utility theory for decisions on two-point lotteries and shows the necessity of giving explicit consideration to lottery qualities. Judged certainty equivalent and choice certainty equivalent concepts are discussed in detail along with the comparison of lotteries. Examples are provided by using different test results in the literature. Copyright Springer Science + Business Media, LLC 2006

Keywords: Lottery choice; Common ratio; Preference reversal; Pricing; Lottery test; Cognitive process; Certainty equivalent (search for similar items in EconPapers)
Date: 2006
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