ADMS 2511 Lecture Notes - Lecture 27: 2014 Winter Olympics, Risk Aversion
1 May 2018
School
Department
Course
Professor
ADMS 2511 Lecture 27 Notes – Risk Aversion
Introduction
• These a e opletely otrived, suh as I ever ake iportat deisios o Friday
the 13th.
• They can also evolve from a certain pattern of behaviour that has been reinforced
previously.
• For example, Mikaël Kingsbury, a world champion in moguls who won a silver medal at
the Sochi Olympics while representing Canada, wears the same T-shirt under his ski
clothing at every competition.
• The T-shirt says It’s good to e the Kig.
• He wore it the first time he won a medal in a World Cup event, and then started wearing
it to every major competition.
• Eve if I do adly, it’s still got soe agi, he said.
• Superstitious behaviour can be debilitating when it affects daily judgments or biases
major decisions.
• Mathematically, we should find a 50–50 flip of the coin for $100 to be worth as much as
a sure promise of $50.
• After all, the expected value of the gamble over a number of trials is $50.
• However, nearly everyone but committed gamblers would rather have the sure thing
than a risky prospect.
• For many people, a 50–50 flip of a coin even for $200 might not be worth as much as a
sure promise of $50, even though the gamble is mathematically worth twice as much!
• This tendency to prefer a sure thing over a risky outcome is risk aversion.
• Risk aversion has important implications.
• To offset the risks inherent in a commission based wage, companies pay commissioned
employees considerably more than they do those on straight salaries.
• Risk-averse employees will stick with the established way of doing their jobs rather than
take a chance on innovative methods.
find more resources at oneclass.com
find more resources at oneclass.com
