Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

REVIEWS

REVIEWS sExpected utility theory (EUT) is the dominant theory of decision making under uncertainty in economics, despite decades of research that fails to confirm its predictions. In their fascinating new book, Risky Curves: On the empirical failure of expected utility, Daniel Friedman, R. Mark Isaac, Duncan James and Shyam Sunder compile and examine systematically the research on EUT, and outline the failure of the theory with respect to both individual decision making and aggregate behaviour. Importantly, they also dig deeper into the evidence to draw conclusions about why the theory fails, and to suggest fruitful directions for future research.sChapter 1 provides a brief introduction. Here the authors contrast the layman's definition of risk with economists’ version. The dictionary definition focuses on the possibility and magnitude of harm, injury or loss, while economists think of risk as the variability of payoffs associated with a particular decision. If you ask someone what risk means to them, the dictionary version is a good approximation of what they are likely to tell you; variability, especially at the high end of the distribution of payoffs, does not immediately come to mind as ‘risky’. The distance between the intuitive, vernacular definition of risk and economists' measure http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics & Philosophy Cambridge University Press

Loading next page...
 
/lp/cambridge-university-press/reviews-MgXilPHZya

References

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
Cambridge University Press
Copyright
Copyright © Cambridge University Press 2016 
ISSN
1474-0028
eISSN
0266-2671
DOI
10.1017/S0266267116000183
Publisher site
See Article on Publisher Site

Abstract

sExpected utility theory (EUT) is the dominant theory of decision making under uncertainty in economics, despite decades of research that fails to confirm its predictions. In their fascinating new book, Risky Curves: On the empirical failure of expected utility, Daniel Friedman, R. Mark Isaac, Duncan James and Shyam Sunder compile and examine systematically the research on EUT, and outline the failure of the theory with respect to both individual decision making and aggregate behaviour. Importantly, they also dig deeper into the evidence to draw conclusions about why the theory fails, and to suggest fruitful directions for future research.sChapter 1 provides a brief introduction. Here the authors contrast the layman's definition of risk with economists’ version. The dictionary definition focuses on the possibility and magnitude of harm, injury or loss, while economists think of risk as the variability of payoffs associated with a particular decision. If you ask someone what risk means to them, the dictionary version is a good approximation of what they are likely to tell you; variability, especially at the high end of the distribution of payoffs, does not immediately come to mind as ‘risky’. The distance between the intuitive, vernacular definition of risk and economists' measure

Journal

Economics & PhilosophyCambridge University Press

Published: Oct 4, 2016

References