Matthew Rabin's paper, "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," published in *Econometrica* in 2000, challenges the traditional view that risk aversion is primarily due to diminishing marginal utility of wealth. The paper argues that expected-utility theory, which posits that people are approximately risk neutral when stakes are small, predicts unrealistic levels of risk aversion over large stakes. Specifically, it shows that if an individual is risk averse over small stakes, they will also be extremely risk averse over large stakes, leading to implausible degrees of risk aversion. Rabin presents a theorem that calibrates the relationship between risk attitudes over small and large stakes. The theorem assumes only that the utility function is concave and derives bounds on the rate at which utility increases and decreases with wealth. These bounds imply that if an individual is risk averse over small stakes, they will reject bets with arbitrarily large stakes, which is implausible. The paper also discusses the implications of this calibration for research methods in economics, particularly in experimental economics. It suggests that procedures designed to infer subjects' beliefs from their behavior in laboratory experiments, such as using lotteries, may be redundant or even misleading if expected-utility theory is the correct model. The paper concludes by highlighting the importance of recognizing the limitations of expected-utility theory in explaining modest-scale risk aversion and suggests that alternative models, such as those incorporating loss aversion, provide more plausible explanations.Matthew Rabin's paper, "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," published in *Econometrica* in 2000, challenges the traditional view that risk aversion is primarily due to diminishing marginal utility of wealth. The paper argues that expected-utility theory, which posits that people are approximately risk neutral when stakes are small, predicts unrealistic levels of risk aversion over large stakes. Specifically, it shows that if an individual is risk averse over small stakes, they will also be extremely risk averse over large stakes, leading to implausible degrees of risk aversion. Rabin presents a theorem that calibrates the relationship between risk attitudes over small and large stakes. The theorem assumes only that the utility function is concave and derives bounds on the rate at which utility increases and decreases with wealth. These bounds imply that if an individual is risk averse over small stakes, they will reject bets with arbitrarily large stakes, which is implausible. The paper also discusses the implications of this calibration for research methods in economics, particularly in experimental economics. It suggests that procedures designed to infer subjects' beliefs from their behavior in laboratory experiments, such as using lotteries, may be redundant or even misleading if expected-utility theory is the correct model. The paper concludes by highlighting the importance of recognizing the limitations of expected-utility theory in explaining modest-scale risk aversion and suggests that alternative models, such as those incorporating loss aversion, provide more plausible explanations.