It suggests that economic principles and concepts are deeply intertwined with everyday living and decision-making.
John von Neumann and Oskar Morgenstern.
The maximum willingness to pay to eliminate risk.
His behavior is time-consistent.
Numbers between zero and one that indicate the likelihood that a particular outcome will occur.
Utility aggregated over finitely many periods.
The involved risk.
The exponential discounting rule.
Environmental, inequality, and safety policies.
E(U(Y)) < U[E(Y)]
It is timeless and has a static structure.
1.
A preference for certainty and avoidance of risk.
Any economic activity in which there are uncertain outcomes.
Strategic interaction / game theory.
By paying a premium to avoid uncertain outcomes.
To model decision-making under risk and uncertainty.
Utility.
E(Y) = Pr1 * y1 + Pr2 * y2.
Life is full of uncertainty.
As the difference between the expected value and the certainty equivalent.
(0, 1, 6)
Linda Keijzer.
They are indifferent between certain income and uncertain income with the same expected value.
Equates marginal utility from consumption across time, considering future periods are discounted.
He will always stick to his plan of action.
It helps in evaluating risky outcomes.
The sum of utilities of all possible uncertain outcomes, weighted by their probability.
Intermediate Microeconomics, Games and Behaviour.
It means that the expected utility of a risky option is greater than the utility of the expected value of that option (E(UY) > U[E(Y)]).
Following the original plan in a later period.
1944.
€1600.
Hyperbolic discounting rule.
E(U(Y)) = U[E(Y)]
They prefer the option with certain income.
E(Y) = €1600 and CE = €1518.66.
The individual is risk averse.
ARA decreases.
An individual, subjective parameter.
Borrow or lend.
It involves making choices that reflect a stable preference over time, often influenced by discount rates.
ARA decreases.
Personal reflection on daily risks.
To save energy in December.
Investments, insurance, education, and policy.
It means that a decision maker prefers certain income over uncertain income, given the same expected value.
40.
It ripples back to harm every other part.
A model that describes how people value future rewards less than immediate ones.
They view them as equivalent if they have the same expected value.
Probabilities.
It affects how future periods are valued compared to present consumption.
A behavioral model that describes how people value rewards over time, often favoring immediate rewards over future ones.
60 percent.
http://uu.blackboard.com/
40 percent.
€20,000 and €10,000.
They hold a larger percentage of wealth in risky assets.
By considering both the probability of outcomes and the utility derived from those outcomes.
€15,000.
€20,000.
K2 = K - K1, where K2 = K2/3.
U(Money) = Money
Strategic interaction – sequential encounters.
44.
They have stable preferences over time and maintain self-control.
βδu1 + βδ²u2 > 0.
Individuals hold fewer euros in risky assets.
Individuals hold the same euros in risky assets as wealth increases.
Lectures will be 'live' in addition to lecture clips.
The utility of the expected value is greater than the expected utility of the gamble.
In week 36 instead of week 37.
0 ≤ δ ≤ 1.
5/3
Exponential discounting assumes consistent preferences over time, while hyperbolic discounting shows changing preferences.
Frank Knight.
4.
It examines how economic decisions impact social welfare and community well-being.
Risk averse, risk loving (seeking), and risk neutral.
0.
The parameter that reflects the degree of present bias in decision making.
An attitude where individuals prefer to avoid risk.
Buying a lottery ticket.
Expected behavior is based on desired utility, while actual behavior may differ due to inconsistent time preferences.
'Risk, Uncertainty, and Profit'.
Marginal Rate of Substitution.
They are willing to pay to avoid risk.
It means preferring certainty over uncertainty and being willing to incur a cost to avoid risk.
E(U(Y)) = 0.5 U(€30,000) + 0.5 U(€10,000).
A concave utility function.
(0, 4, 0)
Intertemporal decision problems.
€1600.
Actions taken today have future consequences.
Personal reflection on a significant risk taken.
50% for each option.
Friday, 4th of October, from 11:00 to 13:00.
RRA remains constant.
They influence portfolio choice.
E(Y) = 0.6 × €1000 + 0.4 × €2500.
Personal assessment of insurance coverage.
They prefer the option with certain income over uncertain income, given the same expected value.
It means they prefer a certain outcome over a gamble with a higher or equal expected value.
x1 + x2 / (1 + r) = K1 + K2 / (1 + r).
It suggests a simulated or theoretical decision maker in the risk scenario.
𝑈1 = 𝑢1 − መ𝛽𝛿𝑢2.
The risk attitude is uncertain; it cannot be clearly defined as risk averse or risk seeking.
The discount or interest rate.
Relative Risk Aversion.
0.6 × €1000 = €600.
RRA = Y * A(Y) = -Y * U''(Y) / U'(Y).
0.4 × €2500 = €1000.
𝑈1 = 𝑢1 − 𝛽𝛿𝑢2.
A financial market.
Safe assets: 50; Risky assets: 350.
Oliver Hart and Bengt Holmström.
A formal model of partial naiveté regarding self-control problems.
A preference for taking risks and seeking out uncertain outcomes.
Indifference to risk; decisions are based solely on expected outcomes.
Annika Brown, Naina Kumar, Bruhan Konda, Daniel Mucci, Rindert Ruit, Nicola Sabatini, and Adriaan Willems.
They hold more euros in risky assets.
Oligopoly theory.
€20,000.
It explains the prevalence of hard deadlines for homework.
50% for each outcome.
Humans systematically underestimate future wants and prefer present income.
Economic, social, and ecological systems.
It shows that the utility of a gamble is equal to the expected utility of the outcomes.
(4, 0).
A larger, later reward is always preferred over a smaller, sooner reward.
Multiple Choice (MC).
3.
Preferences shift from favoring larger, later rewards to favoring smaller, present rewards.
It involves the way individuals and firms engage in economic exchanges.
15.
L = ln(x1) + δ × ln(x2) + δ² ln(x3) - λ(x1 + x2 + x3 - K).
Information imperfections in single encounters.
Underestimation of consumption.
The trade-off between consumption in different periods.
By equating the utility function to the expected utility and solving for income (or wealth).
Going to tutorials unprepared.
U₀ = u₀ + β ∑(t=1 to ∞) δᵗ uₜ.
The text does not explain the purpose of the discussion forum.
What if I get it in the future?
Elinor Ostrom.
Risk-averse, risk-neutral, and risk-loving.
E(Y) - CE.
Estimate probabilities based on frequency or subjective probability.
Subscriptions to health clubs/gyms.
A linear utility function.
It shows that the utility of the gamble is equal to the expected utility of the outcomes.
It analyzes how individual choices affect supply and demand, pricing, and resource distribution.
A convex utility function.
4/3
Individuals evaluate risky options based on the expected utility rather than expected value.
It explains governments announcing climate and energy targets.
The specific reason is not provided in the text.
€30,000 and €20,000.
u(x1, x2).
The degree of risk aversion relative to an individual's wealth level.
Overestimation of consumption.
Risk-averse individuals prefer certain outcomes over uncertain ones, while risk-seeking individuals prefer uncertain outcomes with higher potential payoffs.
δ = 1 / (1 + r), which discounts future value to present value.
Absolute Risk Aversion.
Personal predictions regarding the elections.
No, different certain incomes can lead to different conclusions about risk attitude even with the same expected value.
𝑈1 = −𝑢1 + መ𝛽𝛿𝑢2.
Saving and borrowing.
They trade off (marginal) benefits against (marginal) costs.
Information imperfections in sequential encounters, including Adverse selection and Moral Hazard.
Safe assets: 50; Risky assets: 150.
What do I know about others?
It means a person's preferences may change over time, and they may or may not be aware of this change.
They have an incentive to revise their plan of action at a later point in time.
Week 1.
As closed economies.
It quantifies the rate at which future rewards are discounted.
€20,000.
Absolute Risk Aversion.
Default savings in pension plans.
U0 = u0 + δu1 + δ²u2 + ... + δᵗut + ...
The utility of wealth Y.
Tools or strategies used to help individuals stick to their long-term goals.
E(Y) = 0.5 * ($30,000) + 0.5 * ($10,000).
The utility of the expected value of wealth Y.
x1 + x2 / (1 + r) = K1 + K2 / (1 + r).
RRA decreases.
The absolute amount of assets at risk increases with wealth.
max u(x1, x2) subject to x1 + (1/(1+r))x2 = K1 + (1/(1+r))K2.
Absolute Risk Aversion.
It discounts all future consumption compared to present consumption.
Open questions.
The certain payoff that generates as much utility as the expected utility of the gamble.
λ = 1/x2 and λ = 1/x3.
Wealth increases can change the combinations of ARA and RRA, but not all combinations are logically possible.
𝑈1 = −𝑢1 + 𝛽𝛿𝑢2.
It can lead to discrepancies between expected and actual behavior due to inconsistent time preferences.
After Week 4.
It signifies that the utility of the certainty equivalent equals the expected utility of the gamble.
Preferences are unstable over time.
It indicates that the utility of the certain outcome is equal to the utility of the expected outcome.
A tendency to favor immediate rewards over future ones.
There are no externalities.
E(U(Y)) < U[E(Y)]
0.5 probability for €30,000 and 0.5 probability for €10,000.
$20,000.
It is related to the curvature of their utility function.
It suggests that individuals may prefer smaller, immediate rewards over larger, delayed ones.
U0 = ∑(t=0 to T) δᵗ ut.
€81.34.
U(x1, x2, x3) = ln(x1) + δ × ln(x2) + δ² ln(x3).
Weeks 1, 2, 3, and 4.
Compare the certain income of €20,000 with the expected value of €15,000 for Job Option (2).
A job with a bonus contract.
Friday, 1st of November, from 13:30 to 16:00.
To heat the apartment.
The text does not provide specific criteria for passing the course.
It influences choices and the evaluation of costs and benefits over different periods.
0.6 for €1000 and 0.4 for €2500.
They influence resource allocation and decision-making processes.
The text does not provide information regarding Blackboard material.
Social Context: Non-standard preferences.
x1 represents consumption in period 1, and x2 represents consumption in period 2.
Social Context and Moral Hazard, including intrinsic motivation and efficiency wages.
George Akerlof.
The behavior of individuals and firms in making decisions regarding the allocation of resources.
In week 5 instead of week 6.
Option 1 and Option 2.
It helps to explain how individuals make decisions under uncertainty.
It is the guaranteed amount of money that a risk-averse person would accept instead of taking a gamble.
A smaller, present reward is preferred over a larger, later reward.
Relative Risk Aversion.
Economic trade-offs among costs and benefits occurring at different times.
Uncertainty and time.
A term used to describe uncertainty where the likelihood of outcomes is unknown.
They tend to underestimate them.
Strategic interaction – single encounters.
A tendency to favor immediate rewards over future ones.
x1 + x2 + x3 = K.
It leads individuals to make inconsistent choices over time, often prioritizing short-term gratification.
It remains constant regardless of changes in wealth.
E(U(Y)) ≈ 38.97
ARA = -U''(Y) / U'(Y).
The individual has no awareness of their self-control problems.
87.5%.
The individual is aware of their self-control problems and plans accordingly.
U₀ = u₀ + βδu₁ + βδ²u₂ + ... + βδᵗuₜ + ...
K1 represents resources in period 1, and K2 represents resources in period 2.
r.
After Week 7.
Gary Becker.
Abhijit Banerjee and Esther Duflo.
መ𝛽 is the expected level of present bias, while 𝛽 is the true level of present bias.
They prefer the option with uncertain income over the option with certain income, given the same expected value.
Risk involves known likelihood of outcomes, while uncertainty involves unknown likelihood of outcomes.
Honours tutorials.
It indicates that the utility of a risky prospect is equal to the utility of the expected value of that prospect.
An individual’s or an organization’s attitude towards risk-taking.
€30,000 and €10,000.
Factors that motivate individuals to make certain decisions.
x2 = K2 + (1 + r)(K1 - x1).
E(Y) = 0.5(€30,000) + 0.5(€10,000).
The degree to which an individual prefers certain outcomes over uncertain ones, regardless of wealth.
E(U(Y)) = 0.6 × U(€1000) + 0.4 × U(€2500)
It influences how individuals weigh potential outcomes and their associated probabilities.
4.
The text does not specify whether tutorial slides will be shared.
The desired utility U1 must be greater than 0.
The relative amount of assets at risk.
(x1, x2).
It can vary depending on the level of wealth.
Discounted Utility Model (Exponential Discounting) and Beta/delta model (Hyperbolic Discounting).
All weeks.
– (1+r) K1 + (1/(1+r)) K2 / ((1+r) K1 + K2).
Sequential encounters, including GT, SPNE, and Oligopoly (Stackelberg).
The person consumes x2 = x3 = K/3.
Do I know how much I get?
Non-standard preferences and beliefs, including Bounded Rationality and Prospect Theory.
Daniel Kahneman.
They believe that future preferences will be identical to current preferences (መ𝛽 = 1).
The player's preferences change over time, leading to different decisions at different points.
€81.34.
Individuals hold a smaller percentage of wealth in risky assets.
(1, 6).
Issues of self-control.
It represents the idea that individuals have different discount rates for immediate versus delayed rewards.
They prefer a certain outcome over a gamble with the same expected value.
U(Money) = ln(Money).
It assesses the impact of economic activities on environmental sustainability and resource conservation.
41.
β = 1/2 and δ = 2/3.
The expected utility is less than the utility of expected wealth.
Personal opinion on climate change predictions.
Period 1 (the present) and Period 2 (next period).
Personal prediction on future energy sources.
The single person decision problem: uncertainty and time, including Expected Utility Theory and Discounted Utility Model.
1518.66.
The text does not clarify what the exam material includes.
It means an individual wants to deviate from their original plan at a later period.
Social Context: Motivation and Norms.
The text does not specify where to find the articles.
U'(Y) is the first derivative of the utility function, and U''(Y) is the second derivative.
87.5%.
Safe assets: 50; Risky assets: 50.
What if my outcome depends on what others do?
They represent payoffs, such as income.
6.
They represent the probabilities of y1 and y2, respectively.
Decreasing Absolute Risk Aversion.
Individuals hold the same percentage of wealth in risky assets as wealth increases.
1921.
Expected value = (0.5 * €30,000) + (0.5 * €10,000) = €15,000.
The concept that choosing one option requires giving up another.
Inconsistent time preferences.
The parameter that represents the discount rate for future rewards.
To choose between Option 1 and Option 2 based on the outcomes.
It represents an individual's level of self-control.
The Relative amount of assets at risk increases.
It affects decision-making and market efficiency.
MRS = - (1+r) * (x2/x1).
∂L/∂λ = x2 + x3 - K2 = 0.
1.
Relative Risk Aversion.
(K1, K2).
75%.
They consistently fail to act in their long-term interest.
CRRA cannot exist with CARA for the same amount of risky assets.
Douglass North.
The Absolute amount of assets at risk increases.
Constant Relative Risk Aversion.
The specific effort requirement is not detailed in the text.
An attitude where individuals are willing to take on more risk for potential rewards.
A systematic preference for present income.
L = ln(x2) + δ × ln(x3) - λ(x2 + x3 - K2).
By investing in R&D.
50%.
This requires further analysis of the discount factors and preferences.
u1 + δu2 > 0.
Bringing an umbrella or not.
x2 = x3 = K2/2.
Partially naïve individuals recognize some self-control issues, while fully naïve individuals do not recognize any.
The text does not indicate whether reading the articles is mandatory.
Time inconsistency often leads to self-control problems.
Ronald Coase.
Richard Thaler.
It indicates that a person is aware they will have future self-control problems.
An attitude where individuals are indifferent to risk; they evaluate options based solely on expected outcomes.
0 ≤ δ ≤ 1 and 0 ≤ β ≤ 1.
Buying insurance.
Strategic interaction in single encounters, including GT, Nash Equilibrium, and Oligopoly.
The expected level of present bias.
U(Y) = Y.
Information imperfections in single encounters, including GT, BNE, and Auctions.
CE = 1518.66.
James Buchanan.
Jean Tirole.
They correctly predict how their preferences will change over time (መ𝛽 = 𝛽).
Information imperfections in sequential encounters.
MRS = - (∂u/∂x1) / (∂u/∂x2) = - (1 + r) * 62.
Wednesday, 31st of January.
E(U(Y)) ≈ 38.97.
It influences the trade-off between current and future consumption.
How do I value the outcome in a social context?
William Nordhaus.
It means the person underestimates the magnitude of their future self-control problems.
