文档介绍：Chapter 5
Choice Under Uncertainty
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Chapter 1
Topics to be Discussed
Describing Risk
Preferences Toward Risk
Reducing Risk
The Demand for Risky Assets
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Chapter 1
Introduction
Choice with certainty is reasonably straightforward.
How do we choose when certain variables such as e and prices are uncertain (. making choices with risk)?
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Chapter 1
Describing Risk
To measure risk we must know:
1) All of the possible es.
2) The likelihood that each e will occur (its probability).
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Chapter 1
Describing Risk
Interpreting Probability
The likelihood that a given e will occur
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Chapter 1
Describing Risk
Interpreting Probability
Objective Interpretation
Based on the observed frequency of past events
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Chapter 1
Describing Risk
Interpreting Probability
Subjective
Based on perception or experience with or without an observed frequency
Different information or different abilities to process the same information can influence the subjective probability
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Chapter 1
Describing Risk
Expected Value
The weighted average of the payoffs or values resulting from all possible es.
The probabilities of each e are used as weights
Expected value measures the central tendency; the payoff or value expected on average
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Chapter 1
Describing Risk
An Example
Investment in offshore drilling exploration:
Two es are possible
ess -- the stock price increase from $30 to $40/share
Failure -- the stock price falls from $30 to $20/share
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Chapter 1
Describing Risk
An Example
Objective Probability
100 explorations, 25 esses and 75 failures
Probability (Pr) of ess = 1/4 and the probability of failure = 3/4
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Chapter 1