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David Alan Peel and David Law
''Loss Aversion and Ruinous Optimal Wagering in the Markowitz Model of Non-Expected Utility''
( 2016, Vol. 36 No.2 )
The purpose in this note is to demonstrate that the non-expected utility model of Markowitz implies that agents can obtain maximum expected utility from wagering all of their wealth on actuarialy unfair high probability outcomes. In order to remove this property it is necessary to assume that loss aversion tends to infinity as stake size as a proportion of wealth approaches unity.
Keywords: Markowitz Model of Utility, Loss Aversion, Stake as a Proportion of Wealth
JEL: D8 - Information, Knowledge, and Uncertainty: General
Manuscript Received : Sep 21 2015 Manuscript Accepted : Apr 14 2016

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