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What is risk aversion?

H. Orii Stefansson and Richard Bradley

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: According to the orthodox treatment of risk preferences in decision theory, they are to be explained in terms of the agent's desires about concrete outcomes. The orthodoxy has been criticized both for conflating two types of attitudes and for committing agents to attitudes that do not seem rationally required. To avoid these problems, it has been suggested that an agent's attitudes to risk should be captured by a risk function that is independent of her utility and probability functions. The main problem with that approach is that it suggests that attitudes to risk are wholly distinct from people's (non-instrumental) desires. To overcome this problem, we develop a framework where an agent's utility function is defined over chance propositions (that is, propositions describing objective probability distributions) as well as ordinary (non-chance) ones, and argue that one should explain different risk attitudes in terms of different forms of the utility function over such propositions.

JEL-codes: N0 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2019-03-01
New Economics Papers: this item is included in nep-hpe and nep-upt
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Published in British Journal for the Philosophy of Science, 1, March, 2019, 70(1), pp. 77 - 102. ISSN: 0007-0882

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:81364

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