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Risk Management – Managing Risks, not Calculating Them

  • Philip Kostov

    (Queen's University Belfast)

  • John Lingard

    (University of Newcastle)

The expected utility approach to decision making advocates a probability vision of the world and labels any deviation from it ‘irrational’. This paper reconsiders the rationality argument and argues that calculating risks is not a viable strategy in an uncertain world. Alternative strategies not only can save considerable cognitive and computational resources, but are more ‘rational’ with view to the restricted definition of rationality applied by expected utility theorists. The alternative decision making model of risk management is presented and explained.

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File URL: http://econwpa.repec.org/eps/ri/papers/0409/0409001.pdf
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Paper provided by EconWPA in its series Risk and Insurance with number 0409001.

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Length: 21 pages
Date of creation: 15 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpri:0409001
Note: Type of Document - pdf; pages: 21
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  2. Mark J Machina, 1982. ""Expected Utility" Analysis without the Independence Axiom," Levine's Working Paper Archive 7650, David K. Levine.
  3. Daniel McFadden, 1998. "Rationality for Economists?," Working Papers 98-09-086, Santa Fe Institute.
  4. Manski, Charles F, 1999. "Analysis of Choice Expectations in Incomplete Scenarios," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 49-66, December.
  5. Philip Kostov & John Lingard, 2004. "Rural Development as Risk Management," Others 0409013, EconWPA.
  6. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-19, June.
  7. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-17, March.
  8. Philip Kostov & John Lingard, 2004. "Integrated rural development - do we need a new approach?," Others 0409006, EconWPA.
  9. Kunreuther, Howard & Novemsky, Nathan & Kahneman, Daniel, 2001. " Making Low Probabilities Useful," Journal of Risk and Uncertainty, Springer, vol. 23(2), pages 103-20, September.
  10. Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
  11. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  12. Viscusi, W Kip, 1985. "Consumer Behavior and the Safety Effects of Product Safety Regulation," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 527-53, October.
  13. Read, Daniel & Loewenstein, George & Rabin, Matthew, 1999. "Choice Bracketing," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 171-97, December.
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