Talk:Risk aversion

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Mathematics makes very little sense[edit]

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)

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? :) 01:50, 12 April 2006 (UTC)

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-eac, 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 (talk) 19:28, 7 November 2007 (UTC)

Portfolio theory[edit]

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)

Need for mathematics/portfolio theory[edit]

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, 20:32, 11 March 2007 (UTC)


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)

Risk-ambiguity aversion[edit]

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)

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

Relative risk aversion, \rho = 1 case[edit]

I took a quick look at the case \rho approaches 1. As far as I can understand, claim is that \rho \rarr 1 \rArr \frac{c^{1-\rho}}{1-\rho} \rarr 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: (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)

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

Sections seems nonsensical[edit]

"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. (talk) 03:40, 26 February 2009 (UTC)

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)

Linear transformation[edit]

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? (talk) 19:07, 12 March 2009 (UTC)

Public understanding section[edit]

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 (talk) 07:19, 5 March 2010 (UTC)

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)
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)

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? (talk) 20:53, 7 June 2010 (UTC)

How can it be OR if it is so well referenced, including citing another article in Wikipedia specifically about the MMR controversy? Anyway, I've tried to clarify the wording, even though I would have hoped it was already understandable. -- Rixs (talk) 08:56, 8 June 2010 (UTC)
It wasn't clear to me before, but now it is. Well done! Now I can clearly identify what the alleged "risk" was. Thanks! (talk) 19:44, 8 June 2010 (UTC)

Macroeconomics vs personal risk aversion[edit]

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)

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)

CRRA rho[edit]

some discussion about the rho, when rho increases, what does it mean? become more risk aversion? and when taken the intertemporal into account, the less likely to exchange with future? Jackzhp (talk) 15:35, 25 August 2010 (UTC)[edit]

I undid this because the reference is bloggish and not on an apparently reliable source site. It's really just not good enough for Wikipedia, even though it is well-written. If you disagree, feel free to bring it to the reliable sources noticeboard. CRETOG8(t/c) 17:18, 4 March 2011 (UTC)

I agree with Cretog8. It's just an opinion/advocacy blog, not something that counts as a reliable source of anything. Furthermore, the citation was placed right after the sentence "In the real world, many government agencies, e.g. Health and Safety Executive, are fundamentally risk-averse in their mandate"; but the blog doesn't say anything about government agencies. Duoduoduo (talk) 18:14, 4 March 2011 (UTC)
The relevant bit was near the phrase "under the guise of health and safety to try and remove the risks". The article is well referenced, and carefully considered; it is by no means a blog and I'm surprised you think it is. Now, we might argue that this WP article is not the place for such real world stuff, but I believe that risk aversion is more about psychology than mathematics; there is of course ample evidence. I also think that deleting a genuine citation is one of the least useful changes you can make on Wikipedia. -- Rixs (talk) 15:16, 7 March 2011 (UTC)

Variable names are not consistent[edit]

u(x), U(W), u(c) ... — Preceding unsigned comment added by (talk) 15:14, 4 August 2011

Define W variable[edit]

The variable W is never explicitly defined. We can understand it means payment (or maybe wage?) from the second graphic. But it is never defined in the text. At least define it for the first figure. It is very hard to make sense of the figure without knowing W means payment or wage. Maybe this is a trivial point to economists, but this page is certainly consulted by others. I work in machine learning, for instance. It was not immediately obvious to me. --Ric8cruz (talk) 15:43, 28 October 2015 (UTC)