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Price Index Concepts and Measurement$
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W. Diewert, John Greenlees, and Charles R. Hulten

Print publication date: 2010

Print ISBN-13: 9780226148557

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226148571.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 08 December 2019

Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory

Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory

Chapter:
(p.405) 10 Measuring the Output and Prices of the Lottery Sector: An Application of Implicit Expected Utility Theory
Source:
Price Index Concepts and Measurement
Author(s):
Kam Yu
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226148571.003.0011

This chapter presents a novel approach to pricing gambling services, using data on the Canadian lottery system. The Bureau of Labor Statistics excludes gambling from the scope of the Consumer Price Index, partly because it is difficult to determine exactly the appropriate pricing concept and partly because the complexity of making adjustments for “quality” improvements seems to be incredibly complex. The author describes how the quality adjustment problem arises from the fact that, if a lottery increases the odds of winning the lottery, then it appears that a positive increase in “quality” has occurred. Although classical expected utility theory could be applied to provide answers to this quality adjustment problem, as the author notes, this theory does not work satisfactorily in the gambling context. The author tries to specify an appropriate concept, but its theoretical complexity and empirical volatility may prevent statistical agencies from adopting it.

Keywords:   gambling, quality, expected utility theory, theoretical complexity, quality adjustment

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