Merton argues that Theorem 2.3 and Corollary 2.3 together imply that the existence of lotteries is inconsistent

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Merton argues that Theorem 2.3 and Corollary 2.3 together imply that the existence of lotteries is inconsistent with risk aversion.

(a) Explain.

(b) Use utility theory to explain why people buy lottery. [Hint: you may like to refer to Friedman and Savage (1948).]

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Advanced Finance Theories

ISBN: 9789814460378

1st Edition

Authors: Ser-Huang Poon

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Question Posted: May 27, 2024 03:04 AM

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Merton argues that Theorem 2.3 and Corollary 2.3 together imply that the existence of lotteries is inconsistent

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Advanced Finance Theories

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