Game Theory & Math Economics: Yonatan Aumann (Bar-Ilan University) - "A Conceptual Foundation for the Theory of Risk Aversion"

Sun, 17/05/201516:00-17:00
Elath Hall, 2nd floor, Feldman Building, Edmond J. Safra Campus
Classically, risk aversion is equated with concavity of the utility function.  In this work we explore the conceptual foundations of this  definition.  In accordance with neo-classical economics, we seek a  definition that is based solely on the decisions maker's preference  order, independent of numerical values. We present two such definitions, based on simple, conceptually appealing interpretations  of the notion of risk-aversion. We then show that when cast in  numerical form, these definitions coincide with the classical Arrow-Pratt definition - once the latter is defined with respect to  the appropriate units -thus providing a conceptual foundation for the classical definition. The implications of the theory are discussed, including, in particular, to the understanding of insurance.