ECON 100A Chapter Notes - Chapter 5: Information Cascade, Loss Aversion, Ultimatum Game
Document Summary
Objective interpretation of probability: relies on frequency with which certain events tend to occur. Subjective: perception that outcome will occur: different information or abilities to process same information can cause subjective probabilities to vary among individuals. Expected value: probability-weighted average of the payoffs associated with all possible outcomes. Measures central tendency: payoff or value that we would expect on average. Variability: extent to which possible outcomes of uncertain event differ. Deviation: difference between expected payoff and actual pay. Do not provide measure of variability: sometimes positive and sometimes negative. Standard deviation: square root of weighted average of the squares of the deviations of the payoffs associated with each outcome from their expected values. The market basket that consumer s income can buy. Expected utility: sum of utilities associated with all possible outcomes weighted by the probability that each outcome will occur. Risk averse: condition of preferring certain income to risky income with same expected value.
