Economics Dictionary of ArgumentsHome
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| Risk aversion: Risk aversion in economics describes a preference for certainty over uncertainty. Risk-averse individuals or firms prefer a guaranteed outcome over a gamble with a higher or equal expected value, aiming to avoid potential losses even if it means lower potential gains. See also Risks, Risk perception, Behavior, Opportunism, Preferences, Information, Imperfect information._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Harold Demsetz on Risk Aversion - Dictionary of Arguments
Henderson I 55 Risk aversion/DemsetzVsArrow/Demsetz/Henderson/Globerman: Arrow: Even if there were commodity-options, argued Arrow, the free market would still underinvest in information. Arrow gave two reasons: risk aversion and moral hazard. >Risk aversion, >Moral hazard, >Free-rider problem. DemsetzVsArrrow: Demsetz(2) pointed out the “people could be different” fallacy in each. Henderson I 56 If people are risk averse, noted Demsetz, then “the taste for risk reduction must be incorporated into the concept of efficiency.” Risk is something that people, all else equal, would like to avoid. >Risks, >Efficiency, >Moral hazard/Demsetz. Henderson I 57 Public/private sector/Demsetz: Moreover, Demsetz noted, government offcials are often much more risk-averse than are businesses in the private sector. He pointed out that creating a better postal service "seems to be technologically possible and economically promising." But because politicians are "very averse to the risk of being voted out of offce" they hold back on improvements that might lead to layoffs of postal employees. 1. Arrow, Kenneth (1962). Economic Welfare and the Allocation of Resources for Innovation. In The Rate and Direction of Inventive Activity: Economic and Social Factors, National Bureau Committee for Economic Research (Princeton University Press). 2. Demsetz, Harold (1969). Information and Efficiency: Another Viewpoint. Journal of Law and Economics 12, 1 (April): 1-22._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconDems I Harold Demsetz Toward a theory of property rights 1967 Henderson I David R. Henderson Steven Globerman The Essential UCLA School of Economics Vancouver: Fraser Institute. 2019 |
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