DANCEST 805 Lecture Notes - Lecture 18: Downside Risk, Invisible Hand, Net Present Value
Document Summary
See table on page 6, comparison of the two theories. Idea to venture formula: idea=anything + you, opportunity=idea + action, action=function(interaction) on money, product, Factors of production: land price is rent, labor price is wages, capital price is interest/return on investment. In a perfect market these costs would equal the price for the good: profit would be zero. The fourth factor is human capital/entrepreneurs(hip: the profit generated in reality is the price for this good, the factor provided is risk taking. Prediction: the static map: markets are predictable to a greater or lesser degree, markets continuously strive for perfect equilibrium, invisible hand allocates resources, where needed, defensive approach. Risk: the dynamic map: decision-making with not only existing information, calculation of likelihoods of different scenarios, proactive approach. Uncertainty: the blank map: uncertainty cannot be modeled or predicted, unknown and unknowable. See table on page 27, comparison of prediction, risk and uncertainty.
