Willingness to pay and the demand for lotto

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Title:	Willingness to pay and the demand for lotto
Authors:	Wang, Jen-Hung;Tzeng, Larry Y.;Tien, Junji
Contributors:	淡江大學保險學系
Date:	2006-06
Issue Date:	2013-05-31 11:19:01 (UTC+8)
Publisher:	Abingdon: Routledge
Abstract:	Why do many bettors participate in an unfair gamble, in particular a lotto game, while at the same time purchase insurance? The willingness-to-pay for lotto is analysed to find a ‘rational’ explanation for a (local) risk-averter's participation in an unfair bet. A reasonable case is found where bettors’ preference can be approximately characterized as a locally risk-averse and sufficiently prudent cubic function. Such bettors dislike risk but prefer standard third moment of the payoff. The result suggests that the traditional effective price for lotto demand may omit important explanatory variables. We thus propose an alternative method to examine the demand for lotto by incorporating the second and the third moments of lotto's payoff. Evidence from Taiwan Lotto data supports that lotto bettors could be both (locally) risk-averse and rational.
Relation:	Applied Economics 38(10), pp.1207-1216
DOI:	10.1080/00036840500405938
Appears in Collections:	[Graduate Institute & Department of Insurance Insurance] Journal Article

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