RMIN 317 Lecture Notes - Lecture 2: Food Truck, Human Capital, Small Business

• School: University of Calgary
• Department: Risk Management and Insurance
• Course: RMIN 317
• Professor: Anne Elizabeth Kleffner

Document Summary

Appears to be risk-taking behaviour, but in fact is extreme risk avoidance. A: 50/50 chance of winning or losing . B: 50/50 chance of winning or losing ,000. C: 50/50 chance of winning or losing ,000. The expected value is the same for each, but not the risk. The expected value = 0, i. e. [(. 5x100) + (. 5x-100)] = 0. The loss of hurts you more than the gain of benefits you. Evb" = (0. 6 x1000) + (. 40 x -1000) = 200. Evc" = (0. 8 x 10000) + (. 2 x -10000) = 6000. This required incentive is called the risk premium, i. e. a risk-averse individual must be paid to take on additional risk. Scenario 1: which situation do you prefer: receive for sure, 50% chance of receiving ; 50% chance of receiving , 50% of receiving sh; 50% chance of receiving .