Exposition of a New Theory on the Measurement of Risk¶
Bernoulli, D. (1954). Exposition of a New Theory on the Measurement of Risk. Econometrica, 22(1), 23-36.
Cited by¶
3 citations across 3 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Expected Utility
- Bernoulli (1738) anticipated this two centuries before the axioms, resolving the St. Petersburg paradox by proposing that people value the logarithm of wealth rather than wealth itself, so that a bet with infinite expected money commands only a finite price.
This sourceResolves the St. Petersburg paradox by proposing that people value the logarithm of wealth rather than wealth itself, so a bet with infinite expected money commands only a finite price
- Bernoulli (1738) anticipated this two centuries before the axioms, resolving the St. Petersburg paradox by proposing that people value the logarithm of wealth rather than wealth itself, so that a bet with infinite expected money commands only a finite price.
- Logarithmic Perception and Encoding
- Economics (Bernoulli) — diminishing marginal utility of wealth is canonically modelled as log-utility; a proportional gain feels comparable across starting points.
This sourceProposes logarithmic utility of wealth, so a proportional gain has comparable value across starting points.
- Economics (Bernoulli) — diminishing marginal utility of wealth is canonically modelled as log-utility; a proportional gain feels comparable across starting points.
- Risk Aversion
- Risk aversion is the property of an agent's preferences (or, equivalently, their utility function) that causes them to prefer a sure outcome to an uncertain prospect with the same expected value — formally, the agent prefers the certain wealth E[W] to the random wealth W itself, for any non-degenerate gamble, corresponding to a concave utility function U(w) with U''(w) < 0
This sourceResolves the St. Petersburg paradox by proposing that agents value expected utility rather than expected monetary gain, with utility logarithmic in wealth — the founding statement of diminishing marginal utility and concave (risk-averse) utility.
- Risk aversion is the property of an agent's preferences (or, equivalently, their utility function) that causes them to prefer a sure outcome to an uncertain prospect with the same expected value — formally, the agent prefers the certain wealth E[W] to the random wealth W itself, for any non-degenerate gamble, corresponding to a concave utility function U(w) with U''(w) < 0
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