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The Cost of Delayed Lottery Resolution

Author

Listed:
  • Robert F. Bordley

    (General Motors Research Laboratories, Warren, Michigan)

Abstract

When an individual is given a lottery, he usually must wait some time interval before that lottery is resolved. Previous work from the literature has shown that if the individual has to make consumption decisions during that time interval, the lottery's utility will not equal the expected utility of its consequences. In this paper, we derive a formula for the utility of the lottery for situations with relatively small gambles. Our formula is consistent with many of D. Kahneman and A. Tversky's observations. It also is similar, in some ways, to Bell's notion of elation and disappointment.

Suggested Citation

  • Robert F. Bordley, 1988. "The Cost of Delayed Lottery Resolution," Operations Research, INFORMS, vol. 36(1), pages 115-121, February.
    • Handle: RePEc:inm:oropre:v:36:y:1988:i:1:p:115-121
    DOI: 10.1287/opre.36.1.115
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