Expected utility: a defense

Stephen LeRoy

Economics Bulletin, 2003, vol. 7, issue 7, 1-3

Abstract: In recent papers Matthew Rabin and Richard H. Thaler have argued that expected utility theory generates implausible predictions about individuals' attitudes toward small vs. large risks. Specifically, these authors argued that expected utility theory, plus the assertion that individuals reject small risks that are actuarially unfavorable, implies that agents should reject large risks which in fact they would accept. In this paper we question the presumption that the small risks are in fact rejected: they have risk-return characteristics that are superior to those of the daily returns on common stocks, which individuals generally find acceptable.

JEL-codes: D0 G0 (search for similar items in EconPapers)
Date: 2003-11-19
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/pubs/EB/2003/Volume7/EB-03G00009A.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-03g00009

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().