8a8e and 5765 are right. b00e has no idea what he's talking about.
Risk aversion, concave utility, Andrew Gelman
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Rabin makes a very good point: that EUT cannot account for risk aversion over small gambles otherwise it implies absurd levels of risk aversion. But all I'm saying is that his point relies on a implausible assumption: you need to turn down the same (fair) gamble over and over as you get wealthier.
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I'm obviously late to this, but it's funny to read that Andrew Gelman was "late to the party", when - indeed - he proved Rabin's callibration two years before Rabin: http://www.stat.columbia.edu/~gelman/research/published/bayesdemos.pdf
Read more here: http://andrewgelman.com/2005/04/19/loss_aversion_e/
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Gelman proved Rabin's theorem in a much more simple and elegant way two years before Rabin. He did not think it was a big deal and it was published in a paper on classroom demonstrations. As Gelman's prove illustrates, the phenomenon applies to pure gains, not just mixed gambles like Rabin assumes. Rabin and Thaler give 11 examples - all involve mixed gambles (50-50 win 11/lose 10) even though a DM who always rejects a 50-50 win 11/lose 10 gamble will always prefer 10 to a 50-50 chance of winning 11.
The fact that the Gelman/Rabin theorem applies to gains as well as losses means that the theorem doesn't provide evidence for loss aversion. While Gelman's theorem is general, Rabin and Thaler are very specific - a DM who ALwAYS rejects a 50-50 win 11/lose 10 gamble will always reject a 50-50 win infinity/lose 100 example. It turns out that the formula implicitly used by Rabin and Thaler (A DM who always rejects a 50-50 win G/lose L gamble will always reject a 50-50 win infinity/lose L-prime gamble, where L-prime =(L^2)/(W-L) is false.
It's taken me a dozen years to unravel the confusion of Rabin's theorem - Gelman's paper helped a lot.
I've created a blog summarizing the confusion about Rabin's theorem. It comes up high on the list if you google "Rabin and Thaler 2001"P.S. I'm Deb.
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Correction;
all involve mixed gambles (50-50 win 11/lose 10) even though a DM who always rejects a 50-50 win 11/lose 10 gamble will always prefer 10 to a 50-50 chance of winning 21 [NOT 11 AS I MISTYPED].
I am just so stoked that Gelman's paper is being discussed here. My bad.
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This thread represents an important milestone for EJMR: the first genuinely respectful interaction with an anonymous female poster.
Perhaps this site isn't doomed afterall.Google Deb Frisch or visit debfrisch.com, then guess how long that will last.
PS - Check out a2e4 in this thread:
http://www.econjobrumors.com/topic/is-behavioral-economics-doomed -
That's a site dedicated to stalking Dr. Frisch maintained by Kirk I. Hays, a computer programmer in Portland.
http://www.manta.com/c/mtbz4c5/hays-ferron-associates-incorporated
He is assisted by Jeff Goldstein and his wife, Helen Hunt of Denver, CO who have a pending lawsuit against Dr. Frisch in El Paso, CO court filed by Paul F. Lewis, a lawyer who has harassed Dr. Frisch repeatedly in a futile attempt to extort money for Jeff and Helen by falsely alleging she wanted to murder and/or kiss their three year old son.http://www.schmitzlewis.com/index.php?page=paul-lewis#.U8yP5vldUR4
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I'm obviously late to this, but it's funny to read that Andrew Gelman was "late to the party", when - indeed - he proved Rabin's callibration two years before Rabin: http://www.stat.columbia.edu/~gelman/research/published/bayesdemos.pdf
Read more here: http://andrewgelman.com/2005/04/19/loss_aversion_e/Some other people in economics had discovered special cases of the theorem of Rabin before hand as well. I haven't gone through Gelman's piece here. How general is it?
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Some other people in economics had discovered special cases of the theorem of Rabin before hand as well. I haven't gone through Gelman's piece here. How general is it?
Not general at all. He gives an example of CARA utility, and suggests that it would always hold for CARA utility
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That's a site dedicated to stalking Dr. Frisch maintained by Kirk I. Hays, a computer programmer in Portland.
http://www.manta.com/c/mtbz4c5/hays-ferron-associates-incorporated
He is assisted by Jeff Goldstein and his wife, Helen Hunt of Denver, CO who have a pending lawsuit against Dr. Frisch in El Paso, CO court filed by Paul F. Lewis, a lawyer who has harassed Dr. Frisch repeatedly in a futile attempt to extort money for Jeff and Helen by falsely alleging she wanted to murder and/or kiss their three year old son.
http://www.schmitzlewis.com/index.php?page=paul-lewis#.U8yP5vldUR4Oh my god, Kirk has been outed here as well!!