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Precis of Risk and Rationality

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Abstract

My book Risk and Rationality argues for a new alternative to the orthodox theory of rational decision-making. This alternative, risk-weighted expected utility maximization, holds that there are three important components involved in rational decision-making: utilities, probabilities, and risk-attitudes. This essay explains the basic outline of the theory and precisely how it differs from the orthodox theory. It also summarizes the main threads of argument in the book.

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Notes

  1. Buchak (2013). Other rank-dependent theories include anticipated utility (Quiggin 1982), dual theory (Yaari 1987), Choquet expected utility (Schmeidler 1989; Gilboa 1987), and cumulative prospect theory (Kahneman and Tversky 1979; Tversky and Kahneman 1992). For a survey, see Wakker (2010).

  2. Example and graphs taken from Buchak (2017).

References

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  • Gilboa, I. (1987). Expected utility with purely subjective non-additive probabilities. Journal of Mathematical Economics, 16, 65–88.

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  • Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263–291.

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  • Quiggin, J. (1982). A theory of anticipated utility. Journal of Economic Behavior & Organization, 3, 323–343.

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  • Schmeidler, D. (1989). Subjective probability and expected utility without additivity. Econometrica, 57(3), 571–587.

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  • Tversky, A., & Kahneman, D. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty, 5, 297–323.

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  • Wakker, P. (2010). Prospect theory for risk and ambiguity. Cambridge: Cambridge University Press.

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  • Yaari, M. E. (1987). The dual theory of choice under risk. Econometrica, 55(1), 95–115.

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Authors and Affiliations

  1. Department of Philosophy, University of California, Berkeley, CA, USA

    Lara Buchak

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  1. Lara Buchak
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Correspondence to Lara Buchak.

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Buchak, L. Precis of Risk and Rationality . Philos Stud 174, 2363–2368 (2017). https://doi.org/10.1007/s11098-017-0904-7

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  • DOI: https://doi.org/10.1007/s11098-017-0904-7

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