Journal of Risk and Uncertainty

, Volume 32, Issue 3, pp 195–216 | Cite as

Lottery qualities

  • Yves Alarie
  • Georges Dionne
Article

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.

Keywords

Lottery choice Common ratio Preference reversal Pricing Lottery test Cognitive process Certainty equivalent 

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Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  • Yves Alarie
    • 1
  • Georges Dionne
    • 1
  1. 1.Canada Research Chair in Risk ManagementMontrealCanada

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