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Risk and Rationality$
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Lara Buchak

Print publication date: 2013

Print ISBN-13: 9780199672165

Published to Oxford Scholarship Online: April 2014

DOI: 10.1093/acprof:oso/9780199672165.001.0001

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Instrumental Rationality and Expected Utility Theory

Instrumental Rationality and Expected Utility Theory

(p.10) 1Instrumental Rationality and Expected Utility Theory
Risk and Rationality

Lara Buchak

Oxford University Press

This chapter presents examples of preferences that seem prima facie reasonable but that expected utility theory cannot accommodate. It explains why expected utility theory cannot accommodate these preferences by examining how the theory formally analyses the concept of risk-aversion. This chapter considers different views about what the utility function represents, including realism, constructivism, and formalism. It is shown that on all of these views, expected utility theory dictates that only “local” considerations about the values of outcomes can give rise to risk-averse preferences. Expected utility theory rules out a different reason for having risk-averse preferences: sensitivity to global properties of gambles. This chapter also investigates the range of alternative descriptive models found in the philosophy, economics, and psychology literature, and it is argued that none of these non-expected utility models can be normative: none of them provides a successful analysis of instrumental rationality. It is proposed that a new model is needed.

Keywords:   risk-aversion, expected utility, non-expected utility, global sensitivity, instrumental rationality, realism, constructivism, formalism

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