ECON 148 Lecture Notes - Lecture 1: Decision-Making, Rationality, Basel Accords
Document Summary
2009 admitted entire business was a scam. 1911 led a 5 person expedition to the south pole. Poor decision making costs time, money, jobs and even lives. In business contexts, decisions can make the difference between success and failure. Doing thing right means knowing how- and why- we so often do things wrong . Understanding decision processes facilitates prediction on individual group outcomes. Humans do not always do what would seem rational or intuitive to an outside observer. Example: value at risk and bank capital requirement. In making lending decision, banks must weigh value interest against risk carried estimates of capital demand. Beliefs : estimates of default probability, opportunity costs, future capital availability, Choice set : loan terms (exposure, maturity, interest rate, etc. ) States of the world : possible income streams(including potential for firm failure) Likewise, those investing in banks must consider exposure. Regulating exposure: capital requirements and the basel accords. Agreements determine how risk is assessed, communicated.
