Economics 2010a Fa|2003 Edward L. Glaeser Lecture 7
Economics 2010a Fall 2003 Edward L. Glaeser Lecture 7
7. More on Uncertainty Prospect Theory, LoSS Aversion b. Subjective Utility and Common Knowledge Risk Aversion d. First and Second Order stochastic Dominance Asset demand and risk Aversion
7. More on Uncertainty a. Prospect Theory, Loss Aversion b. Subjective Utility and Common Knowledge c. Risk Aversion d. First and Second Order Stochastic Dominance e. Asset Demand and Risk Aversion
f. State Dependent Preferences g. Application The Draft
f. State Dependent Preferences g. Application: The Draft
a great deal of attention has been recently paid to ideas like prospect theory and loss aversion(Kahneman and Tversky) Point #f 1 of these studies-people are very sensitive to framing and current position Rabin-people are risk averse over small bets-this is actually incompatible with standard measured levels of risk aversion Point #2 people are concave in the win domain(classically riskaverse), but convex in the loss domain
A great deal of attention has been recently paid to ideas like prospect theory and loss aversion (Kahneman and Tversky). Point # 1 of these studies– people are very sensitive to framing and current position. Rabin – people are risk averse over small bets– this is actually incompatible with standard measured levels of risk aversion. Point # 2: people are concave in the win domain (classically riskaverse), but convex in the loss domain
Subjective Probabilities and common Knowledge Agreeing to disagree-the lemon juice out of your ear problem Assume for a second that people were risk neutral-utility is always just cash Some people say that you can get betting because of differences of opinion about probabilities In other words consider the situation where someone comes up to you and bets you 10 dollars that lemon juice is going to squirt out of your ear so you win if lemon juice doesn't squirt out of your ear
Subjective Probabilities and Common Knowledge Agreeing to disagree–the lemon juice out of your ear problem. Assume for a second that people were risk neutral–utility is always just cash. Some people say that you can get betting because of differences of opinion about probabilities. In other words, consider the situation where someone comes up to you and bets you 10 dollars that lemon juice is going to squirt out of your ear so you win if lemon juice doesn’t squirt out of your ear