We investigate the ability of expected utility theory to account for simultaneous gambling and insurance. Contrary to a previous claim that borrowing and lending in perfect capital markets rules out a demand for gambles, we show that expected utility theory with non-concave utility functions can...

We examine the ability of expected utility function ofthe Friedman-Savage type to account for gambling when consumers also have opportunities for intertemporal substitutions. When the time horizon is infinite, we demonstrate that even in intra-period utility functions have the Friedman-savage...