If people are consistently slightly risk averse on small bets and expected utility theory is approximately correct, then they have to be massively, stupidly risk averse on larger bets, in ways that are clearly unrealistic.
Clearly unrealistic? EY (IIRC) once mentioned a study where a largish fraction of respondents explicitly preferred 100% probability of getting $500 to 15% probability of getting $1,000,000.
Very interesting (i wish they’d gone into more details about that particular choice!)
Though it doesn’t change the fact that diminishing marginal utility doesn’t explain betting behaviour for most people; I know enough people who’d reject the 50-50 gamble on +55, −50, but accept the higher gamble.
Clearly unrealistic? EY (IIRC) once mentioned a study where a largish fraction of respondents explicitly preferred 100% probability of getting $500 to 15% probability of getting $1,000,000.
For that strong claim, I think you’ll need to give a reference.
Shane Frederick, 2005, “Cognitive Reflection and Decision Making”, Journal of Economic Perspectives.
Very interesting (i wish they’d gone into more details about that particular choice!) Though it doesn’t change the fact that diminishing marginal utility doesn’t explain betting behaviour for most people; I know enough people who’d reject the 50-50 gamble on +55, −50, but accept the higher gamble.