Introduction

“A new idea does not come forth in its mature scientific form. It contains logical ambiguities or errors; the evidence on which it rests is incomplete or indecisive; and its domain of application is exaggerated in certain directions and overlooked in others,” wrote Stigler in one of his essays on the history of economics.

These sentences summarize the justification for presenting the model of risk-taking and decision making on which the arguments in this book rely, despite that its essential features have been presented in the work of R. Brenner (1983, 1985, 1987). I made various approximations in those early works, omitted details, and overlooked some implications. This appendix presents corrections and compares it with other models that try to explain decision-making and risk-taking behavior, a comparison that earlier works made only in passing.

The points emphasized in this appendix are only those that I judged pertinent to the subject matter covered in this book: gambling, insurance, progressive taxation, decision making in general, and the link to sources and allocation of capital.