Willingness to pay and the demand for lotto
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.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
Document Type: Research Article
Department of Finance, Shih Hsin University, No. 1, Lane 17, Sec. 1, Mu-Cha Rd, Taipei, Taiwan 116
Department of Finance, Taiwan University, 50 Lane 144, Keelung Rd., Sec. 4, Taipei, Taiwan 106
Publication date: 2006-06-10
More about this publication?