文档介绍：Risk Aversion and Expected-Utility Theory:
A Calibration Theorem
Matthew Rabin
Department of Economics
University of California – Berkeley
First draft distributed: October 13, 1997
Current draft: May 29, 1999
Abstract
Within the expected-utility framework, the only explanation for risk aversion is that
the utility function for wealth is concave: A person has lower marginal utility for addi-
tional wealth when she is wealthy than when she is poor. This paper provides a theorem
showing that expected-utility theory is an utterly implausible explanation for apprecia-
ble risk aversion over modest stakes: Within expected-utility theory, for any concave
utility function, even very little risk aversion over modest stakes implies an absurd
degree of risk aversion over large stakes. Illustrative calibrations are provided.
Keywords: Diminishing Marginal Utility, Expected Utility, Risk Aversion
JEL Classifications: B49, D11, D81
Acknowledgments: Many people, including David Bowman, Colin Camerer, Eddie Dekel, Larry Epstein, Erik Eyster, Mitch Polin-
sky, Drazen Prelec, Richard Thaler, and Roberto Weber, as well as Andy Postlewaite and two anonymous referees, have provided
useful feedback on this paper. I thank Jimmy Chan, Erik Eyster, Roberto Weber, and especially Steven Blatt for research assistance,
and the Russell Sage, MacArthur, National Science (Award 9709485), and Sloan Foundations for financial support. I also thank the
Center for Advanced Studies in Behavioral Sciences, supported by NSF Grant SBR-960123, where an earlier draft of the paper was
written.
Mail: 549 Evans Hall #3880 / Department of Economics / University of California, Berkeley / Berkeley, CA 94720-3880. E-mail:
******@. CB Handle: ‘‘Game Boy’’. Web Page: /~rabin/
1. Introduction
Using expected-utility theory, economists model risk aversion as arising solely because the utility
function over wealth is concave. T