Will a Risk-averse Decision Maker Ever Really Prefer an Unfair Gamble?

摘要

Prakash, Chang, Hamid, and Smyser (1996) purport to show that with sufficient preference for positive skewness, risk-averse managers might elect to engage in unfair gambles. Their “proof'’of the impossible assumes the existence of a differentiable risk-preference function that satisfies certain assumptions about the first three derivatives. The fundamental flaw in their argument is that no differentiable function exists for which risk aversion and the participation in an unfair gamble are compatible.