army1987 comments on Risk aversion does not explain people's betting behaviours - Less Wrong

8 Post author: Stuart_Armstrong 20 August 2012 12:38PM

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Tags: utility expected_utility risk risk_aversion

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Comment author: [deleted] 21 August 2012 10:34:58PM *  1 point [-]

If people are consistently slightly risk averse on small bets and expected utility theory is approximately correct, then they have to be massively, stupidly risk averse on larger bets, in ways that are clearly unrealistic.

Clearly unrealistic? EY (IIRC) once mentioned a study where a largish fraction of respondents explicitly preferred 100% probability of getting $500 to 15% probability of getting $1,000,000.

Comment author: Stuart_Armstrong 21 August 2012 10:51:20PM 0 points [-]

For that strong claim, I think you'll need to give a reference.

Comment author: pengvado 22 August 2012 03:31:48AM *  2 points [-]

Shane Frederick, 2005, "Cognitive Reflection and Decision Making", Journal of Economic Perspectives.

Comment author: Stuart_Armstrong 22 August 2012 09:18:35AM 0 points [-]

Very interesting (i wish they'd gone into more details about that particular choice!) Though it doesn't change the fact that diminishing marginal utility doesn't explain betting behaviour for most people; I know enough people who'd reject the 50-50 gamble on +55, -50, but accept the higher gamble.

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