A Model of Casino Gambling

  title={A Model of Casino Gambling},
  author={Nicholas Barberis},
  journal={Behavioral \& Experimental Finance eJournal},
  • N. Barberis
  • Published 1 May 2009
  • Economics, Law
  • Behavioral & Experimental Finance eJournal
We show that prospect theory offers a rich theory of casino gambling, one that captures several features of actual gambling behavior. First, we demonstrate that for a wide range of preference parameter values, a prospect theory agent would be willing to gamble in a casino even if the casino offers only bets with no skewness and with zero or negative expected value. Second, we show that the probability weighting embedded in prospect theory leads to a plausible time inconsistency: at the moment… 

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