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Is "Risk Preference" a Praxeological Truth?

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Prashanth Perumal posted on Thu, Oct 25 2012 4:13 PM

I am just wondering if there could be something called "risk preference" similar to the Austrian concept of "time preference"? By risk preference I mean that acting men, all other things being equal, would prefer ends that entail lower risk to ends that entail higher risk.

Could this be a self-evident axiom by any chance? Any Austrian writing on this issue?

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This is necessarily true, and I actually don't think that there's been much writing on it per se, although it's necessarily implied in most Austrian work on interest and entrepreneurship.

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Is risk preference implied in the concept of time preference itself?

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No, it has nothing to do with time preference but rather it is necessarily implied in the fact of praxeology; that men act to fulfill their own values. Because man seeks to reach his goal, and not to fail, he will always choose the most surefire way of achieving his values, all other things equal.

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Bogart replied on Fri, Oct 26 2012 1:08 PM

I would say Yes to risk preference being a self evident axiom.  And there are writings on the topic of risk in entrepreneurship.  The issue is that risk is an enormously broad topic.  But Rothbard writes about risk and there is some really good data from Robert Higgs on political risk and how that affects not just the micro, but the macro economy as well.

I think the reason why there is not a lot of data on this is that the risk of failure in entrepreneurial activities does not bring about the Business Cycle.  Understand that artificially increasing the risk of failure through force does create Economic Calculation Problems.  The interest rate on the other hand directly affects the Business Cycle in addition to creating Economic Calculation Problems.

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