Risk Perception in Psychology and Economics.
Abstract
The concept of rationality has been basic to most economic analysis. Its content has been successively refined over the generations. As applied to the static world of certainty, it has turned out to be a weak hypothesis, not easily refuted and therefore not very useful as an explanation, though not literally a tautology. But recent decades have seen the development of stronger versions applied to a world in which time and uncertainty are real. Among its most important manifestations have been criteria for consistency in allocation over time, the expected-utility hypothesis of behavior under uncertainty, and what may be termed the Bayesian hypothesis for learning, that is the consistent use of conditional probabilities for changing beliefs on the basis of new information. These hypotheses have been used widely in offering explanations of empirically-observed behavior, though as not infrequently in economics, the theoretical development has gone much further than the empirical implementation. These hypotheses have also been used increasingly in normative analysis, as a component of benefit-cost studies (therefore frequently referred to as benefit-risk studies). The value of reducing mortality rates from diseases, for example, has been studied by assuming that choice of occupations is made inter alia by comparing wage differences with mortality differences.
Document Details
- Document Type
- Technical Report
- Publication Date
- Oct 01, 1981
- Accession Number
- ADA111671
Entities
People
- Kenneth J. Arrow
Organizations
- Stanford University