01:220:395 Lecture Notes - Lecture 19: Daniel Kahneman, Standard Deviation

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2 May 2016
Department
April 5, 2016
Strict liability
Harm and cause
Negligence rule
- Plaintiff must also prove “fault” (breach of duty) in addition to harm and cause
- Requires “breach of duty” by the defendant to establish liability. The defendant
escapes liability if he satisfies a standard of care to avoid the harm he has caused
Risk and probability
- Determines rational behavior by the defendant and plaintiff to avoid “breach of duty
Attitude toward risk
Risk averters
When confronted with gambles with different expected values, they prefer a
gamble with more certain outcome to one with a less certain outcome
Risk lovers
When confronted with gambles with different expected values, they prefer a
gamble with a less certain outcome
Kahneman and Tversky behavior study
- most people cannot accurately measure low prob events
- exaggerate the prob of major accidents occurring
- ex. Power tools vs power plants
Perfect information
- information that will dispel uncertainty
Risk
- hazard or chance of lost
Probability
- likelihood or chance that something will happen
Standard deviation of a prob
- the most frequently used method for dispersion in a probability distribution (a
measure of risk)
- a large standard deviation tend to mean greater risk
Compensation harm
- physical
- emotional
- economical
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