Journal of Risk and Uncertainty

, Volume 29, Issue 3, pp 241–259

The Utility of Gambling Reconsidered

  • Enrico Diecidue
  • Ulrich Schmidt
  • Peter P. Wakker

DOI: 10.1023/B:RISK.0000046145.25793.37

Cite this article as:
Diecidue, E., Schmidt, U. & Wakker, P.P. Journal of Risk and Uncertainty (2004) 29: 241. doi:10.1023/B:RISK.0000046145.25793.37


The utility of gambling, which entails an intrinsic utility or disutility of risk, has been alluded to in the economics literature for over a century. This paper demonstrates that any utility of gambling almost unavoidably implies a violation of fundamental rationality properties, such as transitivity or stochastic dominance, for static choices between gambles. This result may explain why the utility of gambling, a phenomenon so widely discussed, has never been formalized in the economics literature. The model of this paper accommodates well-known deviations from expected utility, such as the Allais paradox and the coexistence of gambling and insurance, while minimally deviating from expected utility.

certainty effect utility of gambling risk aversion nonexpected utility 

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Enrico Diecidue
    • 1
  • Ulrich Schmidt
    • 2
  • Peter P. Wakker
    • 3
  1. 1.INSEADDecision SciencesCRDMFrance
  2. 2.Institut für FinanzmarkttheorieUniversität HannoverGermany
  3. 3.Department of EconomicsUniversity of AmsterdamThe Netherlands

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