Talk:Risk aversion

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mathematics makes very little sense

The mathematics makes very little sense. Either it should explained more rigorously (modulo linear transformation makes no sense at all) so a mathematician could understand it, or more simply with concrete examples so a layman could.

Sorry to be so critical :) .

Am trying to learn subject so can edit it myself. Wish I'd shut up now :D .

Stevebennet 01:05, 12 April 2006 (UTC)[reply]

After a quick look on the internet I think it would be better to leave the maths out (which adds very little to the article) and explain that a single measure of risk aversion is impossible because people have different behaviours in different situations as per the text in the section 'limitations'.

Hey, am I a rude SOB or what? :)

84.66.201.15 01:50, 12 April 2006 (UTC)[reply]

Actually, even some of the math proposed here wasn't quite accurate... for economic analysis, the arrow-pratt relative coefficient of risk aversion is, by ordinairy differential equations is solved as 1-e^ac, but the integration constant 1 doesn't change the utility, so often times is left out of analysis. Unless, of course you want to compare 1 util to another. :P —Preceding unsigned comment added by 216.165.8.10 (talk) 19:28, 7 November 2007 (UTC)[reply]

Portfolio theory

The new subsection on portfolio theory pertains more to risk than risk aversion. Will move it there unless there's discussion/dissent... Jeremy Tobacman 08:55, 27 February 2007 (UTC)[reply]

Need for mathematics/portfolio theory

Please do NOT make the suggested changes in re: removing math, or removing the reference to portfolio theory. Risk aversion in general, and the two formal models of risk aversion in general, do *not* make sense without the formal specifications that are provided here, and the portfolio theory application is very useful. (Just today I googled this page because I wanted to double-check the difference between CARA and CRRA.) Best, 140.247.153.97 20:32, 11 March 2007 (UTC)[reply]

behaviour/behavior

Note: earliest version of this article was written with "behaviour", Americanizing the spelling of existing articles runs against WP:ENGVAR. Pete.Hurd (talk) 03:33, 3 February 2008 (UTC)[reply]

Risk-ambiguity aversion

I recently came across the above term in a 2002 back issue of The Economist, explained as "people tend to overestimate unknown risks." Can mention be made of this in the article? Regards, --Technopat (talk) 12:09, 26 October 2008 (UTC)[reply]

- Ambiguity is completely different from risk aversion, so I would say it needs its own entry. —Preceding unsigned comment added by 67.159.85.184 (talk) 19:17, 6 January 2009 (UTC)[reply]

Relative risk aversion, $\rho =1$ case

I took a quick look at the case $\rho$ approaches 1. As far as I can understand, claim is that $\rho \rightarrow 1\Rightarrow {\frac {c^{1-\rho }}{1-\rho }}\rightarrow ln(c)$ , which I cannot understand. Can someone add a link to the original proof or correct my misunderstanding?

To begin with, plotting the function close to $\rho =1$ shows that it diverges towards infinity. Doing the modification that the text suggest, subtracting one from numerator, changes things, but it also changes the function completely. My plots are here: http://picasaweb.google.com/kalle.raita/Random#5299320537913965986 (Couldn't upload to wiki...). Left is original function, right is the modified form.

When comparing the original function with prerequisites of using L'Hôpital's rule, they are simply not fulfilled. Because the nominator is approaching zero, the numerator should also, but it is not. Even if the modified function has limit, I don't see how it relates to the original function having limit.

I tried also expanding the numerator as a series, but it gave the same result of approaching infinity.

KRaita (talk) 14:32, 5 February 2009 (UTC)[reply]

--subtract one in the numerator as well. The result follows from l'hospital's rule. —Preceding unsigned comment added by 75.85.84.63 (talk) 06:10, 14 December 2009 (UTC)[reply]

Sections seems nonsensical

"A person is given the choice between two scenarios, one with a guaranteed payoff and one without. In the guaranteed scenario, the person receives $50. In the uncertain scenario, a coin is flipped to decide whether the person receives $100 or nothing. The expected payoff for both scenarios is $50, meaning that an individual who was insensitive to risk would not care whether they took the guaranteed payment or the gamble."

For scenario #2, wouldn't the expected payoff be $0 or $100? Unless we're talking averages or something similar. Either way, I don't think the wording is very coherent to the average reader. I would have edited the page, but I'm not sure what was meant.

209.129.94.61 (talk) 03:40, 26 February 2009 (UTC)[reply]

You didn't want to say "coherent to the expected reader" did you? :-) Yes, plain words and sci words may be mutually confusing. Yes, you are right the text is talking about averages. Also, the phrase "... , meaning ... would not care" is misleading as well. Psychology of gambling and probabitity theory of gambling are very different things and must not be mixed in the same sentence. I will think what may be done (unless someone else fixes the problem before me). - 7-bubёn >t 19:00, 3 March 2009 (UTC)[reply]

Linear transformation

The utility function u(c) is defined only modulo linear transformation - in other words a constant factor to be added to the value of U(x) for all x, and/or U(x) could be multiplied by a constant factor, without affecting the conclusions.

That should be affine transformation, right? 130.14.254.26 (talk) 19:07, 12 March 2009 (UTC)[reply]

Public understanding section

Much of the 'public understanding' section to me reads as original research with some albeit minor POV problems. It may not be, but it reads that way, and should be more thoroughly referenced to either correct that misunderstanding or allay suspicions. —Preceding unsigned comment added by 74.15.66.17 (talk) 07:19, 5 March 2010 (UTC)[reply]

You're right that it should be more thoroughly referenced. It's not OR. It's also quite different from the theoretical and economic style of the rest of this article; that's intentional. Don't know when I'll have time to change it, though. Can someone help, perhaps looking in Slow parenting, etc? --- Rixs (talk) 11:05, 5 March 2010 (UTC)[reply]

I've added a quote with link to a TV programme about children and risk. I wonder a bit if there's a better page to put this, than "Risk aversion". --- Rixs (talk) 00:31, 7 March 2010 (UTC)[reply]

I agree it seems Original Research. It's also very poorly written, to the point I don't understand in the following section which is the supposed risk and how would a risk-averse attitude attempt to mitigate it:

A vaccine to protect children against three common diseases was developed and recommended for all children. However, a controversy arose around allegations that it caused autism. These were thoroughly disproved,[13] but even years later, some parents chose to spend significant amounts of their own money on alternatives from private doctors.

Is the risk-averse behavior attempting the avoid vaccines because they are "risky", or is it to accept vaccines as mainstream and find alternative treatments "risky" because they are unproven? 201.216.245.25 (talk) 20:53, 7 June 2010 (UTC)[reply]

Macroeconomics vs personal risk aversion

It seems most of this article is about the macroeconomics of risk aversion, without actually saying so. Thus the examples make sense economically but not for any particular individual.

Considering the playground example, macroeconomically it may well make sense to spend less on expensive safety equipment to have more playgrounds available. For any particular parent this does not make any sense - there is an absolute risk aversion to both playground accidents and road accidents. The parents will frequently resolve this by moving into a location with a nearby safely equipped playground. Which may actually be the most macroeconomically viable solution anyway, however for the sake of this article it needs to be explained how the absolute risk aversion of the individual is modelled. Richiez (talk) 09:37, 3 May 2010 (UTC)[reply]

Yes, presumably there's a theory or process of assigning risk and responsibility to other people rather than oneself. This will include getting lawyers to sue the local government or playground owner. But I am not the person to write that. There's also different timescales; playing video games all day reduces risk of a child getting injured in the street or meeting antisocial influences like drug dealers, but in the long term it reduces the individual's ability to manage their own life. -- Rixs (talk) 10:00, 3 May 2010 (UTC)[reply]