Samuelson’s Fallacy of Large Numbers With Decreasing Absolute Risk Aversion

Karl Whelan

No 202413, Working Papers from School of Economics, University College Dublin

Abstract: Samuelson (1963) conjectured that accepting multiple independent gambles you would reject on a stand-alone basis violated expected utility theory. Ross (1999) and others presented examples where expected utility maximizers would accept multiple gambles that would be rejected on a stand-alone basis once the number of gambles gets large enough. We show that a stronger result than Samuelson’s conjecture applies for DARA preferences over wealth. Expected utility maximizers with DARA preferences have threshold levels of wealth such that those above the threshold will accept N positive expected value gambles while those below will not and these thresholds are increasing with N.

Keywords: Risk aversion; Paul Samuelson; Law of large numbers (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2024-07
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10197/27925 First version, 2024 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 405 Not Allowed (http://hdl.handle.net/10197/27925 [302 Found]--> https://researchrepository.ucd.ie/handle/10197/27925)

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:ucn:wpaper:202413

Access Statistics for this paper

More papers in Working Papers from School of Economics, University College Dublin Contact information at EDIRC.
Bibliographic data for series maintained by UCD School of Economics ().