When to Quit Gambling, if You Must!

@article{Hu2021WhenTQ,
  title={When to Quit Gambling, if You Must!},
  author={Sang Hu and Jan Obł{\'o}j and Xun Yu Zhou},
  journal={DecisionSciRN: Rational Decision-Making (Topic)},
  year={2021}
}
We develop an approach to solve Barberis (2012)'s casino gambling model in which a gambler whose preferences are specified by the cumulative prospect theory (CPT) must decide when to stop gambling by a prescribed deadline. We assume that the gambler can assist their decision using an independent randomization, and explain why it is a reasonable assumption. The problem is inherently time-inconsistent due to the probability weighting in CPT, and we study both precommitted and naive stopping… 

References

SHOWING 1-10 OF 31 REFERENCES

A Model of Casino Gambling

TLDR
It is demonstrated 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.

The Utility of Gambling Reconsidered

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

Randomized strategies and prospect theory in a dynamic context

TLDR
It is shown that allowing randomization can significantly alter the predictions of their model, and can result in voluntary cessation of gambling.

Dynamic Inconsistency in Risky Choice: Evidence from the Lab and Field

Many economically important settings, from financial markets to consumer choice, involve dynamic decisions under risk. People are willing to accept risk as part of a sequence of choices---even when

Fair Procedures: Evidence from Games Involving Lotteries

TLDR
It is found that an unbiased random procedure is an acceptable substitute for an unbiased allocation: similar patterns of acceptance and rejection result when either is inserted as a feasible proposal in a sequential battle-of-the-sexes.

Prospect theory: an analysis of decision under risk — Source link

This paper presents a critique of expected utility theory as a descriptive model of decision making under risk, and develops an alternative model, called prospect theory. Choices among risky

Are Investors Reluctant to Realize Their Losses?

I test the disposition effect, the tendency of investors to hold losing investments too long and sell winning investments too soon, by analyzing trading records for 10,000 accounts at a large

Flipping a Coin: Theory and Evidence

We investigate the possibility that a decision-maker prefers to avoid making a decision and instead delegates it to an external device, e.g., a coin flip. In a series of experiments the participants

Advances in prospect theory: Cumulative representation of uncertainty

We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory,

Irrational diversification in multiple decision problems