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 |
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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. |
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ISSN: | 0039-7857 1573-0964 1573-0964 |
DOI: | 10.1007/s11229-018-01929-5 |