The Harmfulness of the EU Theory

7 Pages Posted: 6 Jun 2011

See all articles by Hak Choi

Hak Choi

Chienkuo Technology University - Department of International Business; Chung-Hua Institution for Economic Research

Date Written: May 1, 2011

Abstract

Despite many evidences of contradiction, the EU theory is still widely used as a convenient tool. This paper proves that the EU theory is harmful, in that people will lose a lot of money by following its decision rules. Some Monte Carlo simulations are conducted to rule out the possibility of exception. While the law of large numbers is the base to disprove the EU theory, this paper also warns of its confusion with the law of large value. Another possible misuse of the law in connection with the pari-mutual betting system is also explained.

Keywords: Expected Utility, Law of Large Numbers, Pari-mutual Betting, Central Limit Theorem

JEL Classification: C11, G01, G22

Suggested Citation

Choi, Hak, The Harmfulness of the EU Theory (May 1, 2011). Available at SSRN: https://ssrn.com/abstract=1858145 or http://dx.doi.org/10.2139/ssrn.1858145

Hak Choi (Contact Author)

Chienkuo Technology University - Department of International Business ( email )

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