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What is risk aversion?

Bradley, Richard and Stefansson, H. Orii (2019) What is risk aversion? British Journal for the Philosophy of Science, 70 (1). pp. 77-102. ISSN 0007-0882

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Identification Number: 10.1093/bjps/axx035

Abstract

According to the orthodox treatment of risk preferences in decision theory, they are to be explained in terms of the agent's desires about concrete outcomes. The orthodoxy has been criticized both for conflating two types of attitudes and for committing agents to attitudes that do not seem rationally required. To avoid these problems, it has been suggested that an agent's attitudes to risk should be captured by a risk function that is independent of her utility and probability functions. The main problem with that approach is that it suggests that attitudes to risk are wholly distinct from people's (non-instrumental) desires. To overcome this problem, we develop a framework where an agent's utility function is defined over chance propositions (that is, propositions describing objective probability distributions) as well as ordinary (non-chance) ones, and argue that one should explain different risk attitudes in terms of different forms of the utility function over such propositions. 1 Introduction 2 Risk Attitudes in the von Neumann-Morgenstern Framework 2.1 Conceptual challenges 2.2 Empirical challenges 3 Risk-Weighted Expected Utility Theory 3.1 Risk-weighted expected utility versus expected utility 3.2 Problems with risk-weighted expected utility theory 4 Risk Attitudes in the Jeffrey Framework 4.1 Linearity, chance neutrality, and risk aversion 4.2 Distinguishing risk attitudes 4.3 Ambiguity and the four-fold patter 5 Conclusion.

Item Type: Article
Official URL: https://academic.oup.com/bjps
Additional Information: © 2017 The Authors
Divisions: Philosophy, Logic and Scientific Method
Subjects: B Philosophy. Psychology. Religion > B Philosophy (General)
H Social Sciences > HC Economic History and Conditions
Sets: Departments > Philosophy, Logic and Scientific Method
Date Deposited: 15 Jun 2017 11:52
Last Modified: 12 Nov 2019 00:13
URI: http://eprints.lse.ac.uk/id/eprint/81364

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