This paper is concerned with the discussion of the phenomenon sometimes described as “the utility and disutility of chance” both from the descriptive and the prescriptive point of view Emphasis is not on axioms and formal properties but on the psychological content of decision theoretic constructs.

Fear is often seen as pathological, to be eliminated by expensive emotion-damping pharmaceuticals that have drastic side effects. Such therapies have indiscernible long-term success since they ignore why we have brains. This paper offers a new fundamental theory based on recognising that mental illness is bad decisionmaking—bad risk processing of external stimuli. Whiffs of danger—small risks —generate little fears and hopes of whether an act will have a nice or nasty surprise. From enough whiffs of danger with rapid reliable feedback (...) on whether the surprise is nice or nasty, and in adequate variety children learn the difference between luck and sensible choice, and adults maintain adequate decisionmaking—the author’s ‘whiffs of danger’ theory. Lack of whiffs constitutes risk starvation and can arise from under-challenge or over-challenge. Boys’ ADHD springs from under-challenge in physical risks—the digital seduction—and over-challenge in mental, psychological, social risks—by faster maturing schoolgirls as teachers quit traditional boy favouritism. Boys’ IQ/maturity over-challenge could be cut by: appropriate pre-school care; single sex schools or in co-ed schools boys’ school entry postponed so one year older than their female classmates; and boys praised for expressions of fears, hopes, not for emotion-damped macho utterances. Under-challenge underlies some panic attacks and epileptic fits, and a high proportion of depressions and dementias. Like schoolboys’ physical under-challenge, these under-challenges are reducible by compensating societal changes. (shrink)

The paper re-expresses arguments against the normative validity of expected utility theory in Robin Pope (1983, 1991a, 1991b, 1985, 1995, 2000, 2001, 2005, 2006, 2007). These concern the neglect of the evolving stages of knowledge ahead (stages of what the future will bring). Such evolution is fundamental to an experience of risk, yet not consistently incorporated even in axiomatised temporal versions of expected utility. Its neglect entails a disregard of emotional and financial effects on well-being before a particular risk is (...) resolved. These arguments are complemented with an analysis of the essential uniqueness property in the context of temporal and atemporal expected utility theory and a proof of the absence of a limit property natural in an axiomatised approach to temporal expected utility theory. Problems of the time structure of risk are investigated in a simple temporal framework restricted to a subclass of temporal lotteries in the sense of David Kreps and Evan Porteus (1978). This subclass is narrow but wide enough to discuss basic issues. It will be shown that there are serious objections against the modification of expected utility theory axiomatised by Kreps and Porteus (1978, 1979). By contrast the umbrella theory proffered by Pope that she has now termed SKAT, the Stages of Knowledge Ahead Theory, offers an epistemically consistent framework within which to construct particular models to deal with particular decision situations. A model by Caplin and Leahy (2001) will also be discussed and contrasted with the modelling within SKAT (Pope, Leopold and Leitner 2007). (shrink)

Expected utility theory does not directly deal with the utility of chance. It has been suggested in the literature (Samuelson, 1952, Markowitz, 1959) that this can be remedied by an approach which explicitly models the emotional consequences which give rise to the utility of chance. We refer to this as the elaborated outcomes approach. It is argued that the elaborated outcomes approach destroys the possibility of deriving a representation theorem based on the usual axioms of expected utility theory. This is (...) shown with the help of an example due to Markowitz. It turns out that the space of conceivable lotteries over elaborated outcomes is too narrow to permit the application of the axioms. Moreover it is shown that a representation theorem does not hold for the example. (shrink)