Can risk aversion survive the long run?
Can it be rational to be risk-averse? It seems plausible that the answer is yes—that normative decision theory should accommodate risk aversion. But there is a seemingly compelling class of arguments against our most promising methods of doing so. These long-run arguments point out that, in practice...
| Main Author: | |
|---|---|
| Format: | Journal article |
| Language: | English |
| Published: |
Oxford University Press
2022
|
| _version_ | 1797111842409021440 |
|---|---|
| author | Wilkinson, H |
| author_facet | Wilkinson, H |
| author_sort | Wilkinson, H |
| collection | OXFORD |
| description | Can it be rational to be risk-averse? It seems plausible that the answer is yes—that normative decision theory should accommodate risk aversion. But there is a seemingly compelling class of arguments against our most promising methods of doing so. These long-run arguments point out that, in practice, each decision an agent makes is just one in a very long sequence of such decisions. Given this form of dynamic choice situation and the (Strong) Law of Large Numbers, they conclude that those theories which accommodate risk aversion end up delivering the same verdicts as risk-neutral theories in nearly all practical cases. If so, why not just accept a simpler, risk-neutral theory? The resulting practical verdicts seem to be much the same. In this paper, I show that these arguments do not in fact condemn those risk-aversion-accommodating theories. Risk aversion can indeed survive in the long run. |
| first_indexed | 2024-03-07T08:16:07Z |
| format | Journal article |
| id | oxford-uuid:be714ca2-98c2-4f4a-ac1a-ea2af83808c5 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T08:16:07Z |
| publishDate | 2022 |
| publisher | Oxford University Press |
| record_format | dspace |
| spelling | oxford-uuid:be714ca2-98c2-4f4a-ac1a-ea2af83808c52023-12-19T16:29:15ZCan risk aversion survive the long run?Journal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:be714ca2-98c2-4f4a-ac1a-ea2af83808c5EnglishSymplectic ElementsOxford University Press2022Wilkinson, HCan it be rational to be risk-averse? It seems plausible that the answer is yes—that normative decision theory should accommodate risk aversion. But there is a seemingly compelling class of arguments against our most promising methods of doing so. These long-run arguments point out that, in practice, each decision an agent makes is just one in a very long sequence of such decisions. Given this form of dynamic choice situation and the (Strong) Law of Large Numbers, they conclude that those theories which accommodate risk aversion end up delivering the same verdicts as risk-neutral theories in nearly all practical cases. If so, why not just accept a simpler, risk-neutral theory? The resulting practical verdicts seem to be much the same. In this paper, I show that these arguments do not in fact condemn those risk-aversion-accommodating theories. Risk aversion can indeed survive in the long run. |
| spellingShingle | Wilkinson, H Can risk aversion survive the long run? |
| title | Can risk aversion survive the long run? |
| title_full | Can risk aversion survive the long run? |
| title_fullStr | Can risk aversion survive the long run? |
| title_full_unstemmed | Can risk aversion survive the long run? |
| title_short | Can risk aversion survive the long run? |
| title_sort | can risk aversion survive the long run |
| work_keys_str_mv | AT wilkinsonh canriskaversionsurvivethelongrun |