TY - JOUR
T1 - Understanding risk
T2 - A guide for the perplexed
AU - Glimcher, Paul W.
N1 - Copyright:
Copyright 2009 Elsevier B.V., All rights reserved.
PY - 2008/12
Y1 - 2008/12
N2 - Over the course of the past decade, neurobiologists have become increasingly interested in concepts and models imported from economics. Terms such as "risk," "risk aversion," and "utility" have become commonplace in the neuroscientific literature as single-unit physiologists and human cognitive neuroscientists search for the biological correlates of economic theories of value and choice. Among neuroscientists, an incomplete understanding of these concepts has, however, led to a growing confusion that threatens to check the rapid advances in this area. Adding to the confusion, notions of risk have more recently been imported from finance, which employs quite different, although formally related, mathematical tools. Of course, the mixing of economic, financial, and neuroscientific traditions can only be beneficial in the long run, but truly understanding the conceptual machinery of each area is a prerequisite for obtaining that benefit. With that in mind, I present here an overview of economic and financial notions of risk and decision. The article begins with an overview of the classical economic approach to risk, as developed by Bernoulli. It then explains the important differences between the classical tradition and modern neoclassical economic approaches to these same concepts. Finally, I present a very brief overview of the financial tradition and its relation to the economic tradition. For novices, this should provide a reasonable introduction to concepts ranging from "risk aversion" to "risk premiums."
AB - Over the course of the past decade, neurobiologists have become increasingly interested in concepts and models imported from economics. Terms such as "risk," "risk aversion," and "utility" have become commonplace in the neuroscientific literature as single-unit physiologists and human cognitive neuroscientists search for the biological correlates of economic theories of value and choice. Among neuroscientists, an incomplete understanding of these concepts has, however, led to a growing confusion that threatens to check the rapid advances in this area. Adding to the confusion, notions of risk have more recently been imported from finance, which employs quite different, although formally related, mathematical tools. Of course, the mixing of economic, financial, and neuroscientific traditions can only be beneficial in the long run, but truly understanding the conceptual machinery of each area is a prerequisite for obtaining that benefit. With that in mind, I present here an overview of economic and financial notions of risk and decision. The article begins with an overview of the classical economic approach to risk, as developed by Bernoulli. It then explains the important differences between the classical tradition and modern neoclassical economic approaches to these same concepts. Finally, I present a very brief overview of the financial tradition and its relation to the economic tradition. For novices, this should provide a reasonable introduction to concepts ranging from "risk aversion" to "risk premiums."
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U2 - 10.3758/CABN.8.4.348
DO - 10.3758/CABN.8.4.348
M3 - Review article
C2 - 19033233
AN - SCOPUS:60749086072
SN - 1530-7026
VL - 8
SP - 348
EP - 354
JO - Cognitive, Affective and Behavioral Neuroscience
JF - Cognitive, Affective and Behavioral Neuroscience
IS - 4
ER -