By "risk aversion in realty," do you mean "the descriptive thing that people actually do when it comes to risk," or "the prescriptive thing that people should do when it comes to risk"?

Both. I primarily have in mind risk management in finance where what people actually do is much more than compensate for the curve of the utility function; and where people should do what they are doing or they will lose their shirts pretty quickly.

The OP is interested in the prescriptive mode so the simple answer is that dealing with the risk-return tradeoff solely on the basis of the concavity of the utility function is inadequate (see finance which has to and does deal with risk all day long).

Open thread, Apr. 18 - Apr. 24, 2016

by MrMind 1 min read18th Apr 2016176 comments


If it's worth saying, but not worth its own post (even in Discussion), then it goes here.

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