ChoiceUnderUncertainty(微观经济学华侨大学,Jef.pptVIP

Chapter 5Choice Under Uncertainty1Chapter 1第一页，共一百三十六页。 Topics to be DiscussedDescribing RiskPreferences Toward RiskReducing RiskThe Demand for Risky Assets2Chapter 1第二页，共一百三十六页。 IntroductionChoice with certainty is reasonably straightforward.How do we choose when certain variables such as income and prices are uncertain (i.e. making choices with risk)?3Chapter 1第三页，共一百三十六页。 Describing RiskTo measure risk we must know: 1) All of the possible outcomes. 2) The likelihood that each outcome will occur (its probability).4Chapter 1第四页，共一百三十六页。 Describing RiskInterpreting ProbabilityThe likelihood that a given outcome will occur5Chapter 1第五页，共一百三十六页。 Describing RiskInterpreting ProbabilityObjective InterpretationBased on the observed frequency of past events6Chapter 1第六页，共一百三十六页。 Describing RiskInterpreting ProbabilitySubjectiveBased on perception or experience with or without an observed frequencyDifferent information or different abilities to process the same information can influence the subjective probability7Chapter 1第七页，共一百三十六页。 Describing RiskExpected ValueThe weighted average of the payoffs or values resulting from all possible outcomes.The probabilities of each outcome are used as weightsExpected value measures the central tendency; the payoff or value expected on average8Chapter 1第八页，共一百三十六页。 Describing RiskAn ExampleInvestment in offshore drilling exploration:Two outcomes are possibleSuccess -- the stock price increase from $30 to $40/shareFailure -- the stock price falls from $30 to $20/share9Chapter 1第九页，共一百三十六页。 Describing RiskAn ExampleObjective Probability100 explorations, 25 successes and 75 failuresProbability (Pr) of success = 1/4 and the probability of failure = 3/410Chapter 1第十页，共一百三十六页。 Describing RiskAn Example:Expected Value (EV)11Chapter 1第十一页，共一百三十六页。 Describing RiskGiven:Two possible outcomes having payoffs X1 and X2Probabilities of each outcome is given by Pr1 Pr212Chapter 1第十二页，共一百三十六页。 Describing RiskGenerally, expected value is written as