The first part of the talk will be an introduction to Kahneman and Tversky's seminal Prospect Theory, which is a descriptive theory of how people evaluate risk. We will then see a rich model of casino gambling, which captures some features of actual gambling behavior (Barberis 2012). We will analyze, in particular, time inconsistencies that are observed in casinos : a player might enter the casino with an exit strategy in mind; but once he starts playing, he wants to switch to a different strategy.
