Social and Behavioral Sciences Commons^™

Skewness Is The Name Of The Game, Y. H. Cheung

Research outputs pre 2011

Theoretical models of risk taking attempt to explain why risk-averse individuals participate in unfair gambles. This paper evaluates the two explanations as to why rational individuals would accept gambles with negative expected returns. It is found that it is skewness, not the mean or the variance of the prize distribution that attracts risk-averse gamblers. However, evidence shows that there seems to be an optimal trade-off between operators’ sales revenues and skewness of the pay-off; a point that designer of gambling games needs to heed to.