Nick Bostrom wrote:
>I would prefer a 100% chance of getting $1,000,000 to a 50% of getting
>2,001,000. This could be explained either by saying that I am risk averse
>or by saying that there is a diminishing marginal utility of money for me.
>Is there a way of distinguishing these explanations or are they
>fundamentally saying the same thing?
Under expected utility maximization, they are fundamentally the same thing.
This is a very standard result.
>We might try to answer this question by considering goods that purportedly
>don't have a diminishing marginal utility, such as units of pleasure.
>Suppose I prefer a 100% chance of getting 1,000,000 hedons to a 50% of
>getting 2,001,000 hedons.
Then hedons must have non-linear utility, given expected utility.
>Risk aversion, on the other hand, is not supposed to be relative to goods.
But risk aversion is, and is supposed to be, relative to goods!
Robin Hanson firstname.lastname@example.org http://hanson.gmu.edu
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323
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