REPEATED OPTIONAL GAMBLES AND RISK-AVERSION

We analyze in this paper the effect of age on the optimal dynamic stra tegy toward repeated independent gambles. When deciding to accept or t o reject a lottery that is offered today, the gambler knows how many l otteries can yet be played in the future. We first characterize the op timal dynamic strategy when future lotteries are identically distribut ed. We show that the existence of future lotteries always increases th e willingness to gamble today. When the sequence of lotteries is indep endent but not identically distributed, we show that this does not nee d to be true. This analysis can be applied to the problem of investing in indivisible risky investment projects, or to the problem of dynami c optimal insurance demand.