On Professor Kohn and Expected Utility: Correction and Clarification-Rejoinder

Professor Horowitz correctly identifies the limitation of my assuming separable utility functions to derive a marginal condition for efficiency under uncertainty. Correction this limitation, he provides a simple but powerful condition that encompasses the nonseparable as well as the separable case. This condition replaces the dubious Equation (14) derived in Kohn (1999). In a departure from von Neumann-Morgenstern theory, for cases in which the decisions of a risk-averse community are compared with those it would make were it risk-neutral, it is proposed here that the same utility function holds for risk-neutrality as for risk-aversion, but that the stochastic quantities be replaced by their expected value in the former. [Q25]