I've been ranting lately about how I don't like the term "risk aversion," and I was thinking it might help to bring up this post from last year:
This discussion from Keynes (from Robert Skidelsky, linked from Steve Hsu) reminds me of a frustrating conversation I've sometimes had with economists regarding the concept of "risk aversion."
Risk aversion means many things, but in particular it is associated with attiitudes such as preferring a certain $30 to a 50/50 chance of having either $20 or $40. The standard model for this set of attitudes is to assume a nonlinear function for money. It is well known that reasonable nonlinear utility functions do not explain this sort of $20/30/40 attitude (see section 5 of this little article, for example); nonetheless the curving utility function always comes up in discussion, requiring me to waste a few minutes before going on, explaining why it doesn't explain the phenomenon.
It would be as if any discussion of intercontinental navigation required a preliminary discussion of why the evidence shows that the earth is not flat. . . .
