Imprudent Risk Lovers are Inconsistent
7 Pages Posted: 12 Jan 2014
Date Written: January 12, 2014
Research characterizes most risk averters as prudent and temperate but devotes little attention to the study of risk lovers. The risk lovers who prefer to combine good with good are prudent and intemperate. This paper shows how the assumption of “combining good with good” can be relaxed, and how similar results can come from the consistency hypothesis for decision makers. Namely, the risk lovers who are consistent are prudent and intemperate with positive derivatives of their utility function for all orders. However, empirically risk lovers do exist who are both imprudent and intemperate. These risk lovers, being imprudent, are inconsistent.
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