Economic (ir)rationality in risk analysis
2006 (English)In: Economics and Philosophy, ISSN 0266-2671, E-ISSN 1474-0028, Vol. 22, no 2, 231-241 p.Article in journal (Refereed) Published
Mainstream risk analysis deviates in at least two important respects from the rationality ideal of mainstream economics. First, expected utility maximization is not applied in a consistent way. It is applied to endodoxastic uncertainty, i.e. the uncertainty (or risk) expressed in a risk assessment, but in many cases not to metadoxastic uncertainty, i.e. uncertainty about which of several competing assessments is correct. Instead, a common approach to metadoxastic uncertainty is to only take the most plausible assessment into account. This will typically lead to risk-prone deviations from risk-neutrality Secondly, risks and benefits for different persons are added to form a total value of risk. Such calculations are used to support the view that one should accept being exposed to a risk if it brings greater benefits for others. This is in stark contrast to modern Paretian welfare economics, that refrains from interindividual comparisons and does not require people to accept a disadvantage because it brings a larger advantage for others.
Place, publisher, year, edition, pages
2006. Vol. 22, no 2, 231-241 p.
IdentifiersURN: urn:nbn:se:kth:diva-37594DOI: 10.1017/S0266267106000885ISI: 000239865600004ScopusID: 2-s2.0-33746010615OAI: oai:DiVA.org:kth-37594DiVA: diva2:434364
QC 201108152011-08-152011-08-152012-02-21Bibliographically approved