In Robert Frank's article he writes:
This particular type of market failure occurs when two conditions are
met. First, people confront a gamble that offers a highly probable
small gain with only a very small chance of a significant loss.
Second, the rewards received by market participants depend strongly on
relative performance.
Aren't these two conditions present in every competitive market? The
second condition surely holds all the time. The whole notion of
opportunity costs on which neoclassical economists depend is based on
relative performance. The very idea of "normal profit" is your profit
relative to the profit of others. In Marx it is the average rate of
profit that matters so capitalists compare their profits to the average
rate. Perhaps I don't understand the first condition. If there is
uncertainty and people are risk averse doesn't every decision entail
making a small gain -- a gain on the margin in neoclassical terms and a
small chance of a significant loss? What am I missing?
Rudy
--
Rudy Fichtenbaum
Professor of Economics
Chief Negotiator AAUP-WSU
Wright State University
Dayton, OH 45435-0001
937-775-3085
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