•   •   •   •

Download the Paper (740 K, PDF file) - September 11, 2000 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
This paper identifies two distinct types of payoff kinks that can be exhibited by preference functions over monetary lotteries - "locally separable" vs. "locally nonseparable" - and illustrates their relationship to the payoff and probability derivatives of such functions. Expected utility and Fréchet differentiable preference functions are found to be incapable of exhibiting locally nonseparable payoff kinks; rank-dependent preference functions are incapable of avoiding them.

SUGGESTED CITATION:
Mark J. Machina, "Payoff Kinks in Preferences Over Lotteries" (September 11, 2000). Department of Economics, UCSD. Paper 2000-22.
http://repositories.cdlib.org/ucsdecon/2000-22