Welcome to the Nexus of Ethics, Psychology, Morality, Philosophy and Health Care

Welcome to the nexus of ethics, psychology, morality, technology, health care, and philosophy
Showing posts with label Risk Aversion. Show all posts
Showing posts with label Risk Aversion. Show all posts

Thursday, December 1, 2022

Can Risk Aversion Survive the Long Run?

Hayden Wilkinson
The Philosophical Quarterly, 2022

Abstract

Can it be rational to be risk-averse? It seems plausible that the answer is yes—that normative decision theory should accommodate risk aversion. But there is a seemingly compelling class of arguments against our most promising methods of doing so. These long-run arguments point out that, in practice, each decision an agent makes is just one in a very long sequence of such decisions. Given this form of dynamic choice situation and the (Strong) Law of Large Numbers, they conclude that those theories which accommodate risk aversion end up delivering the same verdicts as risk-neutral theories in nearly all practical cases. If so, why not just accept a simpler, risk-neutral theory? The resulting practical verdicts seem to be much the same. In this paper, I show that these arguments do not in fact condemn those risk-aversion-accommodating theories. Risk aversion can indeed survive in the long run.

Conclusion

Where does this leave our most promising risk-aversion-accommodating theories? Do they offer no true alternative to expected value theory, as long-run arguments have suggested?

Such theories do offer an alternative. As shown here, they disagree with expected value theory in various classes of cases: Whenever agents compare options with equal expected value and which one is riskier; when any given pair of options are compared by agents who are simply risk-averse enough; when even agents who are only moderately risk-averse face decisions with particularly high stakes; and, if we reject resolute choice, then also when an agent compares options available to them near the end of their life. And these will include moral decisions on which it is especially important for our theory to get right: high-stakes decisions such as, perhaps, a political leader deciding whether to start a war or an elderly philanthropist deciding where to bequeath their riches. It will not do to simply follow the verdicts of expected value theory in these cases if instead some risk-aversion-accommodating theory is true—disagreement even just in these cases is enough to warrant retaining such theories.

Admittedly, it is true that these theories agree with expected value theory in many cases. We now have formal proof of that. Take any decision between two options (with unequal expected value). If an agent has a suitable risk attitude and faces sufficiently many other decisions in their life, then REU theory and EU theory will agree with expected value theory on the verdict.

Monday, May 15, 2017

Cassandra’s Regret: The Psychology of Not Wanting to Know

Gigerenzer, Gerd; Garcia-Retamero, Rocio
Psychological Review, Vol 124(2), Mar 2017, 179-196.

Abstract

Ignorance is generally pictured as an unwanted state of mind, and the act of willful ignorance may raise eyebrows. Yet people do not always want to know, demonstrating a lack of curiosity at odds with theories postulating a general need for certainty, ambiguity aversion, or the Bayesian principle of total evidence. We propose a regret theory of deliberate ignorance that covers both negative feelings that may arise from foreknowledge of negative events, such as death and divorce, and positive feelings of surprise and suspense that may arise from foreknowledge of positive events, such as knowing the sex of an unborn child. We conduct the first representative nationwide studies to estimate the prevalence and predictability of deliberate ignorance for a sample of 10 events. Its prevalence is high: Between 85% and 90% of people would not want to know about upcoming negative events, and 40% to 70% prefer to remain ignorant of positive events. Only 1% of participants consistently wanted to know. We also deduce and test several predictions from the regret theory: Individuals who prefer to remain ignorant are more risk averse and more frequently buy life and legal insurance. The theory also implies the time-to-event hypothesis, which states that for the regret-prone, deliberate ignorance is more likely the nearer the event approaches. We cross-validate these findings using 2 representative national quota samples in 2 European countries. In sum, we show that deliberate ignorance exists, is related to risk aversion, and can be explained as avoiding anticipatory regret.



The article is here.

Wednesday, January 7, 2015

The origin of risk aversion

By Ruixun Zhang, Thomas J. Brennan, and Andrew W. Lo
PNAS 2014 111 (50) 17777-17782; published ahead of print December 1, 2014, doi:10.1073/pnas.1406755111

Abstract

Risk aversion is one of the most basic assumptions of economic behavior, but few studies have addressed the question of where risk preferences come from and why they differ from one individual to the next. Here, we propose an evolutionary explanation for the origin of risk aversion. In the context of a simple binary-choice model, we show that risk aversion emerges by natural selection if reproductive risk is systematic (i.e., correlated across individuals in a given generation). In contrast, risk neutrality emerges if reproductive risk is idiosyncratic (i.e., uncorrelated across each given generation). More generally, our framework implies that the degree of risk aversion is determined by the stochastic nature of reproductive rates, and we show that different statistical properties lead to different utility functions. The simplicity and generality of our model suggest that these implications are primitive and cut across species, physiology, and genetic origins.

Significance

Risk aversion is one of the most widely observed behaviors in the animal kingdom; hence, it must confer certain evolutionary advantages. We confirm this intuition analytically in a binary-choice model of decision-making—risk aversion emerges from mindless decision-making as the evolutionarily dominant behavior in stochastic environments with correlated reproductive risk across the population. The simplicity of our framework suggests that our results are likely to apply across species. From a policy perspective, our results underscore the importance of addressing systematic risk through insurance markets, capital markets, and government policy. However, our results also highlight the potential dangers of sustained government intervention, which can become a source of systematic risk in its own right.

The entire article is here.

Monday, May 5, 2014

In Medical Decisions, Dread Is Worse Than Fear

Procrastination, on the other hand, may not be so bad.

By Gabriella Rosen Kellerman
The Atlantic
Originally published April 15, 2014

Here is an excerpt:

One of the solutions Rosenberg proposed was “interventions aimed at improving risk communication.” Meaning that, perhaps if healthcare providers can help patients more rationally assess the risks for now versus later, they can help them avoid unnecessary suffering. To do so, providers will have to help patients address the assumptions that enable get-it-out-of-the-way decision-making.

What, for example, is the "it" in "get-it-out-of-the-way" thinking? The pain or consequence one wishes to avoid are often moving, even unknowable, targets. In pathological anxiety states, estimations of what “it” is are part of what goes awry. Patients with phobias consistently overestimate the degree of unpleasantness of a particular exposure.

The entire article is here.

Tuesday, October 1, 2013

"Fairer Sex" or Purity Myth? Corruption, Gender, and Institutional Context

By Justin Esarey and Gina Chirillo

Abstract

Cross-national studies have found evidence that women are individually more disapproving of corruption than men, and that female participation in government is negatively associated with perceived corruption at the country level. In this paper, we argue that this difference reflects greater pressure on women to comply with political norms as a result of discrimination and risk aversion, and therefore a gender gap exists in some political contexts but not others. Bribery, favoritism, and personal loyalty are often characteristic of the normal operation of autocratic governments and not stigmatized as corruption; we nd weak or non-existent relationships between gender and corruption in this context. We  find much stronger relationships in democracies, where corruption is more typically stigmatized.

The entire paper is here.