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Estimating Preferences under Risk: The Case of Racetrack Bettors

Bruno Jullien and Bernard Salanié
Journal of Political Economy
Vol. 108, No. 3 (June 2000), pp. 503-530
DOI: 10.1086/262127
Stable URL: http://www.jstor.org/stable/10.1086/262127
Page Count: 28
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Estimating Preferences under Risk: The Case of Racetrack Bettors
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Abstract

In this paper we investigate the attitudes toward risk of bettors in British horse races. The model we use allows us to go beyond the expected utility framework and to explore various alternative proposals by estimating a multinomial model on a 34,443‐race data set. We find that rank‐dependent utility models do not fit the data noticeably better than expected utility models. On the other hand, cumulative prospect theory has higher explanatory power. Our preferred estimates suggest a pattern of local risk aversion similar to that proposed by Friedman and Savage.

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