On Risk and Rationality

Erkenntnis 79 (S6):1-9 (2014)
Download Edit this record How to cite View on PhilPapers
Abstract
It is widely held that the influence of risk on rational decisions is not entirely explained by the shape of an agent’s utility curve. Buchak (Erkenntnis, 2013, Risk and rationality, Oxford University Press, Oxford, in press) presents an axiomatic decision theory, risk-weighted expected utility theory (REU), in which decision weights are the agent’s subjective probabilities modified by his risk-function r. REU is briefly described, and the global applicability of r is discussed. Rabin’s (Econometrica 68:1281–1292, 2000) calibration theorem strongly suggests that plausible levels of risk aversion cannot be fully explained by concave utility functions; this provides motivation for REU and other theories. But applied to the synchronic preferences of an individual agent, Rabin’s result is not as problematic as it may first appear. Theories that treat outcomes as gains and losses (e.g. prospect theory and cumulative prospect theory) account for risk sensitivity in a way not available to REU. Reference points that mark the difference between gains and losses are subject to framing, many instances of which cannot be regarded as rational. However, rational decision theory may recognize the difference between gains and losses, without endorsing all ways of fixing the point of reference. In any event, REU is a very interesting theory.
PhilPapers/Archive ID
ARMORA
Revision history
Archival date: 2015-09-12
View upload history
References found in this work BETA
Risk and Tradeoffs.Lara Buchak - 2014 - Erkenntnis 79 (S6):1091-1117.

Add more references

Citations of this work BETA
How Valuable Are Chances?Stefansson, H. Orii & Bradley, Richard

Add more citations

Added to PP index
2013-10-16

Total views
140 ( #17,743 of 38,075 )

Recent downloads (6 months)
13 ( #24,401 of 38,075 )

How can I increase my downloads?

Monthly downloads since first upload
This graph includes both downloads from PhilArchive and clicks to external links.