E. Allen Smith wrote:
The third topic is that one commonly applied idea used by the proponents of absolute equality is that found in Rawls' _Theory of Justice_, under which the just outcome is said to be found by a group of people who do not know what situation they will be in. (This is a vast oversimplification of the book(s) in question, which upon closer examination may realize the idea I am about to write down.) The simplistic conclusion is that everyone will want everything to be the same, since any individual might be in a bad or good situation. But if you have a choice between 49 dollars and a 50/50 chance of 0 or 100 dollars, you should take the latter. In other words, a situation in
Not necessarily.
With the exception of needing <=49$ to live, under what conditions would the former choice be better than the latter choice?
A good question. It is based on the theory that every person has a "utility" function in their mind. This function determines the "worth" of money and worthiness of risk. If that function as a function of income is strictly concave ^ U| | | _- | ,~ | ,' | .~ | / |/ || +------------------------------------> money then the utility of your gamble would be U(gamble) == 1/2 * U(0) + 1/2 * U(100). By definition of concavity, it is less than utility of $50. Whether it would be more or less than the utility of $49, depends on a consumer, but it may well be that some people will not like this gamble. There is much evidence that indeed most (if not all) consumers have concave utility function. I know that I would refuse a gamble where I could win $20,000 or get nothing, with equal probability, and prefer to get $9,999 for sure instead. There is much theory about financial asset pricing that relies on the assumption that utility functions are concave. - Igor.