Buying and selling price for risky lotteries and expected utility theory without consequentialism

Abstract

In this paper I show that within expected utility large buying andselling price gap is possible and [R] paradox may be resolved if only initial wealthis allowed to be small. It implies giving up the doctrine of consequentialism whichmay be reduced to requiring initial wealth to be total lifetime wealth of the decision maker. Still, even when initial wealth is allowed to be small and interpretednarrowly as gambling wealth, classic preference reversal is not possible within expected utility. I show that only another kind of reversal which I call preferencereversal B is possible within expected utility. Preference reversal B occurs whenbuying price for one lottery is higher than for another, but the latter lottery ischosen in a direct choice. I demonstrate that classic preference reversal is susceptible to arbitrage whereas preference reversal B is not which suggests that the latterreversal is more rational.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 3 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.