Reference dependence and lottery participation

Key Points

• The research aims to understand how reference dependence and loss aversion impact lottery participation among individuals with low incomes.
• Theoretical framework based on economic principles of reference dependence and loss aversion.
• Analysis of the Friedman–Savage hypothesis regarding income utility.
• Examination of empirical evidence related to lottery spending trends.
• Rationalizes lottery participation without the need for probability weighting.
• Demonstrates that marginal utility of income can be non-monotonic under certain conditions.
• Aligns theoretical findings with observed behaviors in lottery spending.

Abstract