Risk Aversion versus Expected Profit Maximization with a Progressive Income Tax

C. Robert Taylor

American Journal of Agricultural Economics, 1986, vol. 68, issue 1, 137-143

Abstract: This article introduces the terms "apparent," or "pseudo," risk aversion to represent those situations where "real" risk aversion is falsely attributed simply because second and higher moments of random variables are arguments in a decision maker's objective function. Apparent risk aversion can occur when stochastic variables nonlinearly enter the objective function. The progressive income tax structure is highlighted as a neglected but important source of apparent risk aversion. Such sources of apparent risk aversion should be recognized, otherwise an incorrect level of risk aversion might be claimed, or risk aversion might be claimed when risk neutrality prevails.

Date: 1986
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:68:y:1986:i:1:p:137-143.

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