Erkenntnis 79 (S6):1-9 (2014)
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Abstract |
It is widely held that the influence of risk on rational decisions is not entirely explained by the shape of an agent’s utility curve. Buchak (Erkenntnis, 2013, Risk and rationality, Oxford University Press, Oxford, in press) presents an axiomatic decision theory, risk-weighted expected utility theory (REU), in which decision weights are the agent’s subjective probabilities modified by his risk-function r. REU is briefly described, and the global applicability of r is discussed. Rabin’s (Econometrica 68:1281–1292, 2000) calibration theorem strongly suggests that plausible levels of risk aversion cannot be fully explained by concave utility functions; this provides motivation for REU and other theories. But applied to the synchronic preferences of an individual agent, Rabin’s result is not as problematic as it may first appear. Theories that treat outcomes as gains and losses (e.g. prospect theory and cumulative prospect theory) account for risk sensitivity in a way not available to REU. Reference points that mark the difference between gains and losses are subject to framing, many instances of which cannot be regarded as rational. However, rational decision theory may recognize the difference between gains and losses, without endorsing all ways of fixing the point of reference. In any event, REU is a very interesting theory.
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Keywords | risk risk functions expected utility Buchak REU Rabin calibration theorem |
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Reprint years | 2014 |
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DOI | 10.1007/s10670-013-9543-3 |
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References found in this work BETA
Prospect Theory: An Analysis of Decision Under Risk.D. Kahneman & A. Tversky - 1979 - Econometrica: Journal of the Econometric Society:263--291.
Citations of this work BETA
Hope as a Source of Grit.Catherine Rioux - forthcoming - Ergo: An Open Access Journal of Philosophy.
How Valuable Are Chances?H. Orri Stefánsson & Richard Bradley - 2015 - Philosophy of Science 82 (4):602-625.
Risk and Rationality, by Buchak, Lara: Oxford: Oxford University Press, 2013, Pp. Xii + 256, £40. [REVIEW]John Collins - 2015 - Australasian Journal of Philosophy 93 (4):825-828.
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