THE RELATIONSHIP BETWEEN UTILITY AND RISK: EXAMPLES FROM ECONOMICS

Year 2019, Volume: 3 Issue: 3, 491 - 500, 24.11.2019

Gelengül Koçaslan

https://doi.org/10.30692/sisad.611263

Abstract

When the issues in economics are analyzed
deeply, the notion of utility is seen at the heart. As an important concept
utility research has stayed popular so far. There are several research
examining utility from different perspectives. 

One of the important topics that utility is
associated with is risk preferences. Utility perception deviates from what
economic theory predicts when it comes to make a choice among alternatives involving
risk. Besides utility perception and risk preferences variate if the
alternative is a monetary gain or a monetary loss violating principal rules on
utility maximization.

This study presents a detailed outlook of the
concept of utility within the context of attitudes towards risk. It aims to
explain that utility consideration differentiates according to the parameters
of the situation rather than to the mathematical expected value calculation
referring to the St. Petersburg Paradox.

Keywords

Utility, Risk, St. Petersburg Paradox

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