Hi Christian, That was an excellent post. However, it seems to me that you are demolishing a strawman argument. You show (very eloquently) that choosing an inappropriate utility to maximise does not lead to desired results. Next, you say:
> I assume that with a higher number of times one can choose between the > lotteries, it will turn out that in a certain percentage of the cases > people will go for the sure payoff and in the rest for the higher > expected value (which, however, is connected to a higher risk), thus > achieving a certain expected value to variance (or risk) relation. > And this is what I believe people are actually optimizing Would this (or something similar) not then be a better choice of utility to maximise when maximising an expected utility? This ties in with the hypothesis that many (most? all?) instances of risk aversion could be shown to be entirely rational in the maximisation of expected utility sense if only we knew which utility the human in question was maximising. regards, Konrad
