# Risk and Tradeoffs

*Erkenntnis*79 (S6):1091-1117 (2014)

**Abstract**

The orthodox theory of instrumental rationality, expected utility (EU) theory, severely restricts the way in which risk-considerations can figure into a rational individual's preferences. It is argued here that this is because EU theory neglects an important component of instrumental rationality. This paper presents a more general theory of decision-making, risk-weighted expected utility (REU) theory, of which expected utility maximization is a special case. According to REU theory, the weight that each outcome gets in decision-making is not the subjective probability of that outcome; rather, the weight each outcome gets depends on both its subjective probability and its position in the gamble. Furthermore, the individual's utility function, her subjective probability function, and a function that measures her attitude towards risk can be separately derived from her preferences via a Representation Theorem. This theorem illuminates the role that each of these entities plays in preferences, and shows how REU theory explicates the components of instrumental rationality.

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**Reprint years**

2014

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BUCRAT

**Revision history**

Archival date: 2013-07-29

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References found in this work BETA

Risk and Rationality.Buchak, Lara

The Logic of Decision.Jeffrey, Richard C.

The Logic of Decision.Kyberg, Henry E.

Subjective Probability and Expected Utility Without Additivity.Schmeidler, David

Subjective Expected Utility: A Review of Normative Theories. [REVIEW]Fishburn, Peter C.

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Citations of this work BETA

A Dutch Book Theorem for Quantificational Credences.Lennertz, Benjamin

Normative Decision Theory.Elliott, Edward

On Risk and Rationality.Armendt, Brad

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2013-07-29

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