复旦大学本科微观经济学lecture08.ppt

Main topics Consumption under risk Decision-making under uncertainty Gambling and avoiding risk Demand for insurance Value of information Behavioral Economics Probability distribution relates probability of occurrence to each possible outcome first of two following examples is less certain fig. 1 You should know… Calculations Expected values Variance Concepts/Terms Fair bet Risk averse vs. risk neutral vs. risk loving Value of information Fair bet wager with an expected value of zero flip a coin for a dollar: [? ? (1)] + [? ? (-1)] = 0 Gambling Why would a risk-averse person gamble when the bet is unfair? enjoys the game makes a mistake: can’t calculate odds correctly has Friedman-Savage utility fig. 5 Avoiding risk just say no: don’t participate in optional risky activities obtain information diversify risk pooling diversification can eliminate risk if two events are perfectly negatively correlated LOTTERIES A “lottery” is the prospect with known (monetary) payoffs, each one with a known probability of occurring Can represent a lottery by a list of payoffs and their corresponding probabilities * payoffs given by: Xn , n = 1,…,N * probabilities given by: prn , n = 1,…,N where 0 prn 1 such that: pr1 + … + prN = 1 A REAL LOTTERY CALIFORNIA MEGA MILLIONS LOTTERY “Match” Prize Odds / Probabilities Prob*Prize -------------------------------------------------------------------------------------------------------------------------------------------- 5+Mega Ball Grand Prize 1 in 175,711,536 (e.g., $10M) ? 0.0000000057 $0.0 5 $175,000 1 in 3,904,701 0.0000002561 $0.04? 4+Mega Ball $5,000 1 in 689,065 0.0000014512 $0.01? $150 1 in 15,313 0.0000653040 $0.01? 3+Mega Ball $150 1 in 13,781 0.0000725637 $0.01? 2+Mega Ball $10 1 in 844 0.0011848341 $0.01? 3 $7 1 in 306 0.0032679739 $0.02 1+Mega Ball $3 1 in 141 0.0070921986 $0.02? Mega Ball $2 1 in 75 0.0133333333