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Books > Business & Economics > Economics > Economic theory & philosophy
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Risky Curves - On the Empirical Failure of Expected Utility (Paperback)
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Risky Curves - On the Empirical Failure of Expected Utility (Paperback)
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For several decades, the orthodox economics approach to
understanding choice under risk has been to assume that each
individual person maximizes some sort of personal utility function
defined over purchasing power. This new volume contests that even
the best wisdom from the orthodox theory has not yet been able to
do better than supposedly naive models that use rules of thumb, or
that focus on the consumption possibilities and economic
constraints facing the individual. The authors assert this by first
revisiting the origins of orthodox theory. They then recount
decades of failed attempts to obtain meaningful empirical
validation or calibration of the theory. Estimated shapes and
parameters of the "curves" have varied erratically from domain to
domain (e.g., individual choice versus aggregate behavior), from
context to context, from one elicitation mechanism to another, and
even from the same individual at different time periods, sometimes
just minutes apart. This book proposes the return to a simpler sort
of scientific theory of risky choice, one that focuses not upon
unobservable curves but rather upon the potentially observable
opportunities and constraints facing decision makers. It argues
that such an opportunities-based model offers superior
possibilities for scientific advancement. At the very least, linear
utility - in the presence of constraints - is a useful bar for the
"curved" alternatives to clear.
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