ECO200Y1 Lecture Notes - Lecture 11: Marginal Utility, Monotonic Function, Risk Aversion

123 views4 pages
28 Mar 2017
School
Department
Course
violetprairie-dog339 and 52 others unlocked
ECO200Y1 Full Course Notes
32
ECO200Y1 Full Course Notes
Verified Note
32 documents

Document Summary

We use the term lottery or gamble to refer to a situation in which the outcome is uncertain. Agents are going to be choosing between different possible lotteries. -if you do not know the probabilities, the choice environment is very different (ambiguity) >head from coin: head brings your pool doubled, and you keep flipping the coin. >tail from coin: the game ends, and you take whatever money is in the pool. Since the expected value is infinite, the amount of cash depends on each individual. ): bernoulli utility function : utility as a function of wealth; cardinal measure; usually concave. Theory: if assumptions hold, then a utility function exists which satisfied the expected utility property. You can take any monotone increasing transformation, which represents the same preferences. However, this transformation can only apply to u, and not to u. If you want to transform u without changing preferences, only use affine transformations:

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related textbook solutions

Related Documents