Is risk aversion irrational? Examining the “fallacy” of large numbers

A moderately risk averse person may turn down a 50/50 gamble that either results in her winning $200 or losing $100. Such behaviour seems rational if, for instance, the pain of losing $100 is felt more strongly than the joy of winning $200. The aim of this paper is to examine an influential argument...

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Veröffentlicht in:Synthese (Dordrecht) 2020-10, Vol.197 (10), p.4425-4437
1. Verfasser: Orri, Stefánsson H
Format: Artikel
Sprache:eng
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Zusammenfassung:A moderately risk averse person may turn down a 50/50 gamble that either results in her winning $200 or losing $100. Such behaviour seems rational if, for instance, the pain of losing $100 is felt more strongly than the joy of winning $200. The aim of this paper is to examine an influential argument that some have interpreted as showing that such moderate risk aversion is irrational. After presenting an axiomatic argument that I take to be the strongest case for the claim that moderate risk aversion is irrational, I show that it essentially depends on an assumption that those who think that risk aversion can be rational should be skeptical of. Hence, I conclude that risk aversion need not be irrational.
ISSN:0039-7857
1573-0964
1573-0964
DOI:10.1007/s11229-018-01929-5