Showing papers by "Kenneth J. Arrow published in 1982"

Risk perception in psychology and economics

Abstract: : The concept of rationality has been basic to most economic analysis. Its content has been successively refined over the generations. As applied to the static world of certainty, it has turned out to be a weak hypothesis, not easily refuted and therefore not very useful as an explanation, though not literally a tautology. But recent decades have seen the development of stronger versions applied to a world in which time and uncertainty are real. Among its most important manifestations have been criteria for consistency in allocation over time, the expected-utility hypothesis of behavior under uncertainty, and what may be termed the Bayesian hypothesis for learning, that is the consistent use of conditional probabilities for changing beliefs on the basis of new information. These hypotheses have been used widely in offering explanations of empirically-observed behavior, though as not infrequently in economics, the theoretical development has gone much further than the empirical implementation. These hypotheses have also been used increasingly in normative analysis, as a component of benefit-cost studies (therefore frequently referred to as benefit-risk studies). The value of reducing mortality rates from diseases, for example, has been studied by assuming that choice of occupations is made inter alia by comparing wage differences with mortality differences.

Discounting for Time and Risk in Energy Policy

Abstract: The volume addresses the unresolved issues pertaining to the choice of the discount rate to be used in benefit-cost evaluation of public investments and public policies in a market economy with many distortions. It analyzes the question of risk and discounting in connection with energy policy, and it addresses the issues of whether discounting at a positive rate implies intergenerational inequity and whether the benefit-cost framework is sufficiently robust to be used as the basis for choosing between alternatives that may have far-reaching consequences. It addresses the practical problems associated with trying to estimate the appropriate rate of discount, and evaluates the discounting practices within the electric power industry. Separate abstracts were prepared for chapters 2 and 4-12 selected for the Energy Data Base (EDB) and Energy Abstracts for Policy Analysis (EAPA).

Team theory and decentralized resource allocation : an example

Abstract: : The traditional discussion of the price system and alternative forms of decentralized resource allocation in organizations and entire economics has an ambivalent attitude to the ease of transferring information from one locus in the economic system to another On the one hand, the very need for decentralization is based on the assumption that the transmission of information is costly If this were not so, there would be no reason not to transfer all information on the availability of resources and the technology of production to one place and compute at one stroke the optimum allocation of resources On the other hand, the literature has tended to seek algorithms which, in some sense, minimize the amount of information transferred but which at the same time yield in the end the fully optimal allocation of resources In short, there is no true trade-off between information costs and other resource costs