That is a non-standard definition. (Standard definition.) Agents should always be indifferent between bets with identical expected utilities. (They do not always have to be indifferent between bets with identical expected payoffs.)
Preferring a guarantee to a bet is the certainty effect, like I claimed in the grandparent.
Rational agents should be. Irrational agents—in this case, prone to risk aversion—would instead be willing to pay a finite cost for the bet to be replaced with the sure deal, thus losing utility. You can fix this by explicitly incorporating risk in the utility function, making the agent rational and not risk-averse any more.
This strikes me as, though I’m unsure as to which technical term applies here, ‘liking your theory too much’. ’Tis necessary to calculate the probability of payoff for each of two exclusive options of identical utility in order to rationally process the choice. If Option A of Utilon 100 occurs with 80% probability and Option B also of Utilon 100 occurs with 79.9% probability, Option A is the more rational choice. To recognise the soundness of Vaniver’s following statement, one must acknowledge the necessity of calculating risk. [Additionally, if two options are of unequal utility, differences in payoff probabilities become even more salient as the possible disutility of no payoff should lower one’s utility estimate of whichever choice has the lower payoff probability (assuming there is one).]*
(They do not always have to be indifferent between bets with identical expected payoffs.)
Honestly the above seems so simple that I very much think I’ve misunderstood something, in which case please view this as a request for clarification.
[...]* This also seems obvious, but on an intuitive mathematical level, thus I don’t have much confidence in it; it fit better up there than down here.
Again, what you are saying is a non-standard definition. The commonly used term for the bias you’re describing is certainty effect, and risk aversion is used to refer to concave utility functions.
First, concave utility function is just a model for risk aversion which is “the reluctance of a person to accept a bargain with an uncertain payoff rather than another bargain with a more certain, but possibly lower, expected payoff.” (wiki)
Second, the certainty effect is indeed one of the effects that is captured by my preferred model, but of course it’s not limited to it, because it’s possible to behave in a risk-averse manner even if none of the offered bets are certain.
That is a non-standard definition. (Standard definition.) Agents should always be indifferent between bets with identical expected utilities. (They do not always have to be indifferent between bets with identical expected payoffs.)
Preferring a guarantee to a bet is the certainty effect, like I claimed in the grandparent.
Rational agents should be. Irrational agents—in this case, prone to risk aversion—would instead be willing to pay a finite cost for the bet to be replaced with the sure deal, thus losing utility. You can fix this by explicitly incorporating risk in the utility function, making the agent rational and not risk-averse any more.
That sounds like a …drumroll… terminal bias.
Enshrining biases as values in your utility function seems like the wrong thing to do.
This strikes me as, though I’m unsure as to which technical term applies here, ‘liking your theory too much’. ’Tis necessary to calculate the probability of payoff for each of two exclusive options of identical utility in order to rationally process the choice. If Option A of Utilon 100 occurs with 80% probability and Option B also of Utilon 100 occurs with 79.9% probability, Option A is the more rational choice. To recognise the soundness of Vaniver’s following statement, one must acknowledge the necessity of calculating risk. [Additionally, if two options are of unequal utility, differences in payoff probabilities become even more salient as the possible disutility of no payoff should lower one’s utility estimate of whichever choice has the lower payoff probability (assuming there is one).]*
Honestly the above seems so simple that I very much think I’ve misunderstood something, in which case please view this as a request for clarification.
[...]* This also seems obvious, but on an intuitive mathematical level, thus I don’t have much confidence in it; it fit better up there than down here.
Again, what you are saying is a non-standard definition. The commonly used term for the bias you’re describing is certainty effect, and risk aversion is used to refer to concave utility functions.
First, concave utility function is just a model for risk aversion which is “the reluctance of a person to accept a bargain with an uncertain payoff rather than another bargain with a more certain, but possibly lower, expected payoff.” (wiki)
Second, the certainty effect is indeed one of the effects that is captured by my preferred model, but of course it’s not limited to it, because it’s possible to behave in a risk-averse manner even if none of the offered bets are certain.