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The Global Financial Crisis and Its AftermathHidden Factors in the Meltdown$
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A.G. Malliaris, Leslie Shaw, and Hersh Shefrin

Print publication date: 2016

Print ISBN-13: 9780199386222

Published to Oxford Scholarship Online: January 2017

DOI: 10.1093/acprof:oso/9780199386222.001.0001

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Goals and the Organization of Choice under Risk in Both the Long Run and the Short Run

Goals and the Organization of Choice under Risk in Both the Long Run and the Short Run

Chapter:
(p.226) 9 Goals and the Organization of Choice under Risk in Both the Long Run and the Short Run
Source:
The Global Financial Crisis and Its Aftermath
Author(s):

Lola Lopes

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199386222.003.0009

Scholars have been working at explaining why people prefer sure things to risks for almost 300 years. The best-known early explanation, what we now call diminishing marginal utility, has provided a theoretical framework that continues to dominate both economic and psychological thinking. However, the utility notion has not been sufficient for describing risky choice, and its demonstrated failures have exposed other phenomena that also require explanation. Historically, there have been other approaches to explaining risky choice that date back equally as far and that also continue into the present day in fields such as agricultural economics and finance. This chapter focuses on showing how two of these approaches, the principles of safety first and of ruin avoidance, underlie the cognitive mechanisms that are revealed when the reasons for people’s choices under risk are studied directly.

Keywords:   short-run risk, long-run risk, utility notion, agricultural economics, finance

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