RISK PREFERENCE AND THE WORK‐LEISURE TRADE‐OFF

Abstract

The paper investigates the interrelationships between the wage rate, period of employment, work‐leisure choice and the attitude toward risk. The model makes risk preference endogenous given external forces acting on individual choice. Beginning with assumptions normally considered consistent with risk aversion –––namely concave utility with respect to leisure and wealth along with perfect markets–––rational behavior consistent with the “insurance buying gambler” is shown to be a reasonable possibility. The theory also provides an explanation for the “repeating gambler paradox.”

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