Neither risk aversion nor risk tolerance. In their minds, all agents are risk-neutral. Distinction between "risk-averse" or "risk-tolerant" must exclusively refer to subjective valuating differences that agents have in weighing risks with respect to some ultimately arbitrary benchmark.
Impossibility of risk loving or risk seeking. It is logically impossible that an agent be a "risk lover" or "risk seeker". Imagine there are, for some agent whosoever, something which is a good for him and something which is a bad for him, and that he is offered these two different lotteries: the first one which offers to him the good with (what for the agent is subjectively a) probability 1 and the bad with (also subjective and from the agent's viewpoint) probability 0, and the second one which offers him the good with probability 0.5 and the bad with probability 0.5. A true risk lover would accept the second lottery; nevertheless we can say apodictically that no agent will ever choose the second lottery. Not the wackiest loony cuckoo in history, not the sickest compulsive gambler in the world; not the most audacious, temerarious, rashest, most reckless, adventuresome daredevil have ever loved risk qua risk. What some people love is the risky prize, therefore being on the eyes of others risk tolerant. But there cannot, by definition, be "utility from risk".
Saturday, March 12, 2011
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