Risk Management – Managing Risks, not Calculating Them
Philip Kostov and
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John Lingard: University of Newcastle
Risk and Insurance from EconWPA
The expected utility approach to decision making advocates a probability vision of the world and labels any deviation from it ‘irrational’. This paper reconsiders the rationality argument and argues that calculating risks is not a viable strategy in an uncertain world. Alternative strategies not only can save considerable cognitive and computational resources, but are more ‘rational’ with view to the restricted definition of rationality applied by expected utility theorists. The alternative decision making model of risk management is presented and explained.
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpri:0409001
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