Matthew Raven: If you don't like that initial coin flip between losing $100 and gaining $110, then your utility function has to be pretty concave. And if your utility function is already that concave in that low amounts of money, then once you get to losing $1,000, that's actually going to be more valuable than gaining any amount of money whatsoever. So the point is if we start in order to explain these, a small amount of risk aversion in low numbers, we have to imply an implausibly large amount of risk avoidance in large numbers.
Life is rich with moments of uncertainty, where we’re not exactly sure what’s going to happen next. We often find ourselves in situations where we have to choose between different kinds of uncertainty; maybe one option is very likely to have a “pretty good” outcome, while another has some probability for “great” and some for “truly awful.” In such circumstances, what’s the rational way to choose? Is it rational to go to great lengths to avoid choices where the worst outcome is very bad? Lara Buchak argues that it is, thereby expanding and generalizing the usual rules of rational choice in conditions of risk.
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Lara Buchak received a Ph.D. in philosophy from Princeton University. She is currently a professor of philosophy at Princeton. Her research interests include decision theory, social choice theory, epistemology, ethics, and the philosophy of religion. She was the inaugural winner of the Alvin Plantinga Prize of the American Philosophical Association. Her book Risk and Rationality proposes a new way of dealing with risk in rational-choice theory.
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