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Economic (ir)rationality in risk analysis
KTH, School of Architecture and the Built Environment (ABE), Philosophy and History of Technology, Philosophy.
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
Abstract [en]

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.
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URN: urn:nbn:se:kth:diva-37594DOI: 10.1017/S0266267106000885ISI: 000239865600004ScopusID: 2-s2.0-33746010615OAI: diva2:434364
QC 20110815Available from: 2011-08-15 Created: 2011-08-15 Last updated: 2012-02-21Bibliographically approved

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