The Utility of Gambling Reconsidered

P.P. Wakker*, E. Diecidue, U. Schmidt

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


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.
Original languageEnglish
Pages (from-to)241-259
JournalJournal of Risk and Uncertainty
Publication statusPublished - 1 Jan 2004

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