Skewness as an explanation of gambling by locally risk averse agents

M. Cain, David Peel and D. Law

Applied Economics Letters, 2002, vol. 9, issue 15, 1025-1028

Abstract: Within the expected utility framework skewness of return has been suggested as a rationale for why risk averse gamblers might choose to gamble when expected returns are negative. The argument is that risk-averse agents desire positive skewness, ceteris paribus, and are prepared to trade off a lower mean return for more skewness. This article demonstrates with a counter example that this argument is, in general, erroneous.

Date: 2002
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DOI: 10.1080/13504850210161913

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