Choice Under Uncertainty参考.ppt

Chapter 1 Chapter 5 Choice Under Uncertainty Topics to be Discussed Describing Risk Preferences Toward Risk Reducing Risk The Demand for Risky Assets Introduction Choice 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)? Describing Risk To measure risk we must know: 1) All of the possible outcomes. 2) The likelihood that each outcome will occur (its probability). Describing Risk Interpreting Probability Objective Interpretation Based on the observed frequency of past events 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 Describing Risk Expected Value The weighted average of the payoffs or values resulting from all possible outcomes. The probabilities of each outcome are used as weights Expected value measures the central tendency; the payoff or value expected on average Describing Risk An Example Investment in offshore drilling exploration: Two outcomes are possible Success -- the stock price increase from $30 to $40/share Failure -- the stock price falls from $30 to $20/share Describing Risk An Example Objective Probability 100 explorations, 25 successes and 75 failures Probability (Pr) of success = 1/4 and the probability of failure = 3/4 Describing Risk An Example: Describing Risk Given: Two possible outcomes having payoffs X1 and X2 Probabilities of each outcome is given by Pr1 Pr2 Describing Risk Generally, expected value is written as: Describing Risk Variability The extent to which possible outcomes of an uncertain even may differ Describing Risk A Scenario Suppose you are choosing between two part-time sales jobs that have the same expected income ($1,500) The first job is based entirely on commission. The second is a salaried position. Describing Risk A