Lottery qualities |
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Authors: | Yves Alarie Georges Dionne |
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Institution: | (1) Canada Research Chair in Risk Management, HEC Montréal. 3000, chemin Cote-Sainte-Catherine, Montreal, Qc, Canada, H3T 2A7 |
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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.
JEL Classification D81 |
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Keywords: | Lottery choice Common ratio Preference reversal Pricing Lottery test Cognitive process Certainty equivalent |
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