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

Synthese 197 (10):4425-4437 (2020)
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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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H. Orri Stefansson
Stockholm University

Citations of this work

The Tragedy of the Risk Averse.H. Orri Stefánsson - 2020 - Erkenntnis 88 (1):351-364.

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References found in this work

Thinking, Fast and Slow.Daniel Kahneman - 2011 - New York: New York: Farrar, Straus and Giroux.
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Risk and Rationality.Lara Buchak - 2013 - Oxford, GB: Oxford University Press.
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The Foundations of Statistics.Leonard J. Savage - 1954 - Synthese 11 (1):86-89.

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