An Explanation and Characterization for the Buying of Lotteries
Popular lotteries typically give a very small probability to win a large prize and a moderate chance to win smaller prizes. In this paper, a rank dependent model is axiomatized, with an S-shaped weighting function, capable of giving an account for the popularity of these lotteries. Also, the role of utility, loss aversion and scale compatibility in the explanation of the buying of lotteries is discussed.
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