WILL A RISK-AVERSE DECISION-MAKER EVER REALLY PREFER AN UNFAIR GAMBLE

Prakash, Chang, Hamid, and Smyser (1996) purport to show that with suf ficient preference for positive skewness, risk-averse managers might e lect to engage in unfair gambles. Their ''proof'' of the impossible as sumes the existence of a differentiable risk-preference function that satisfies certain assumptions about the first three derivatives. The f undamental flaw in their argument is that no differentiable function e xists for which risk aversion and the participation in an unfair gambl e are compatible.