It’s as low as 70% because I’m Aumanning a little from people who are better at math than me assuring me very confidently that, with math, one can perform such magic as to make risk-neutrality sensible on a human-values-derived utility function. The fact that it looks like it would have to actually be magic prevents me from entertaining the proposition coherently enough simply to accept their authority on the matter.
There may be some confusion here. I don’t think any serious economist has ever argued that risk neutrality is the only rational stance to take regarding risk. What they have argued is that they can draw up utility functions for people who prefer $100 to a 50:50 gamble for $200 or 0. And they can also draw functions for people who prefer the gamble and for people who are neutral. That is, risk (non)neutrality is a value that can be captured in the personal utility function just like (non)neutrality toward artificial sweeteners.
Now, one thing that these economists do assume is at least a little weird. Say you are completely neutral between a vacation on the beach and a vacation in the mountains. According to the economists, any rational person would then be neutral between the beach and a lottery ticket promising a vacation but making it 50:50 whether it will be beach or mountains. Risk aversion in that sense is indeed considered irrational. But, by their definitions, that ‘weird’ preference is not really “risk aversion”.
It’s as low as 70% because I’m Aumanning a little from people who are better at math than me assuring me very confidently that, with math, one can perform such magic as to make risk-neutrality sensible on a human-values-derived utility function. The fact that it looks like it would have to actually be magic prevents me from entertaining the proposition coherently enough simply to accept their authority on the matter.
There may be some confusion here. I don’t think any serious economist has ever argued that risk neutrality is the only rational stance to take regarding risk. What they have argued is that they can draw up utility functions for people who prefer $100 to a 50:50 gamble for $200 or 0. And they can also draw functions for people who prefer the gamble and for people who are neutral. That is, risk (non)neutrality is a value that can be captured in the personal utility function just like (non)neutrality toward artificial sweeteners.
Now, one thing that these economists do assume is at least a little weird. Say you are completely neutral between a vacation on the beach and a vacation in the mountains. According to the economists, any rational person would then be neutral between the beach and a lottery ticket promising a vacation but making it 50:50 whether it will be beach or mountains. Risk aversion in that sense is indeed considered irrational. But, by their definitions, that ‘weird’ preference is not really “risk aversion”.
“Human-values-derived utility function” is a vague and wooly concept—too vague to be of much use, IMHO.