From: IN%"ichudov@algebra.com" 11-DEC-1996 19:45:12.83
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
Except in the case of a consumer for whom the lower end is essentially no different than 0 - e.g., a minimum amount for survival - having a concave utility function for money (as opposed to less-convertible goods/services) is irrational. While I am in favor of allowing people to be irrational if they so desire, I am not in favor of governmental rules (e.g., coercive rules) being determined by irrationality. See my comments on emotion to Matt M. -Allen
E. Allen Smith wrote:
From: IN%"ichudov@algebra.com" 11-DEC-1996 19:45:12.83
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
Except in the case of a consumer for whom the lower end is essentially no different than 0 - e.g., a minimum amount for survival - having a concave utility function for money (as opposed to less-convertible goods/services) is irrational. While I am in favor of allowing people to be irrational if they so desire, I am not in favor of governmental rules (e.g., coercive rules) being determined by irrationality. See my comments on emotion to Matt M.
Utility functions, are never irrational. I like tangerines and hate apples, some other are the other way around, but it is not irrational. Concavity of utility function of money (equivalence of risk-aversion) for most consumers is an empirical fact. I agree that rationality per se should not be mandated by the government rules though. - Igor.
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