Willingness to pay and the demand for lotto

Authors: Wang, Jen-Hung1; Tzeng, Larry Y.2; Tien, Junji2

Source: Applied Economics, Volume 38, Number 10, 10 June 2006 , pp. 1207-1216(10)

Publisher: Routledge, part of the Taylor & Francis Group

Buy & download fulltext article:

OR

Price: $54.28 plus tax (Refund Policy)

Abstract:

Why do many bettors participate in an unfair gamble, in particular a lotto game, while at the same time purchase insurance? The willingness-to-pay for lotto is analysed to find a ‘rational' explanation for a (local) risk-averter's participation in an unfair bet. A reasonable case is found where bettors' preference can be approximately characterized as a locally risk-averse and sufficiently prudent cubic function. Such bettors dislike risk but prefer standard third moment of the payoff. The result suggests that the traditional effective price for lotto demand may omit important explanatory variables. We thus propose an alternative method to examine the demand for lotto by incorporating the second and the third moments of lotto's payoff. Evidence from Taiwan Lotto data supports that lotto bettors could be both (locally) risk-averse and rational.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840500405938

Affiliations: 1: Department of Finance, Shih Hsin University, No. 1, Lane 17, Sec. 1, Mu-Cha Rd, Taipei, Taiwan 116 2: Department of Finance, Taiwan University, 50 Lane 144, Keelung Rd., Sec. 4, Taipei, Taiwan 106

Publication date: June 10, 2006

More about this publication?
Related content

Key

Free Content
Free content
New Content
New content
Open Access Content
Open access content
Subscribed Content
Subscribed content
Free Trial Content
Free trial content

Text size:

A | A | A | A
Share this item with others: These icons link to social bookmarking sites where readers can share and discover new web pages. print icon Print this page