Question by Somebunny: A mathematically “fair bet” is one in which a gambler bets, say 0, for a 10 percent chance to win 00
CONTINUATION.. ($ 100 = .10 x 1000). assuming disminishing marginal utility of dollars, explain why this is not a fair bet in terms of utility. Why is it even less fair a bet when the “house” takes a cut of each dollar bet? so is gambling irrational?
Best answer:
Answer by frnchfries2000
With each additional dollar the number of “utils” i get goes down. Does Warren Buffet really need another billion dollars? He’ll get no utility out of it, but I’ll get a ton.
So the bet is not fair from a utility perspective. However, gambling is not irrational since I get utils from simply making the bet (and say the turn of the roulette wheel). Its not like I only get utils from the $ 1000 if I win.
What do you think? Answer below!
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