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AN EXPLANATION OF OPTIMAL EACH-WAY BETS BASED ON NON-EXPECTED UTILITY THEORY

David Peel, David Law

Abstract


The purpose in this paper is  to demonstrate how the non-expected utility models of Markowitz and Kahneman and Tversky  can explain why an agent, chooses to bet  each way on a horse.

We also show that that appeal to moments of return, such as a preference for skewness of return, ceteris paribus, to explain the choice of the each way gamble over the single win gamble is , in general, invalid.


Keywords


Markowitz Utility Function, Cumulative Prospect Theory, Expo-Value Utility Function, Probability Distortion, Gambling.

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References


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DOI: http://dx.doi.org/10.5750/jgbe.v3i2.584

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