ECON 313 Lecture Notes - Lecture 6: Public Good, Ambiguity Aversion, Risk Aversion
27 Mar 2018
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Document Summary
Resolving ambiguity as public good: experimental evidence from guyana. Everyone can use it and people using it doesn"t diminish the total available amount. When the environment is uncertain and there"s risk (how to choose investments) Utility of gamble = probably of one outcome + probability of second outcome. Life is a choice between all kinds of gambles and we need to have an understanding as to how we choose between gambles. Behavioural economics: people can say whatever they want, but we want to see what they will do. Ambiguity aversion: people don"t like not knowing the probability. Risk aversion: if you want me to take a risk, you have to give a higher average. Voluntary provision of public goods is one of the most widely studied behaviours in the lab. Response to punishment and rewards, endogenous group formation. New explanation: the choice of technology typically involves uncertainty.
