signal and the other person receiving a signal, the probability of lemon squirting is D(1-2) (1-2) or p Both of you should make the same assessment and there is no room for betting n generaly you should never take a bet against someone whose utility function resembles your own
signal and the other person receiving a signal, the probability of lemon squirting is pz1z z1z or p. Both of you should make the same assessment and there is no room for betting. In generaly, you should never take a bet against someone whose utility function resembles your own
Risk Aversion-(New Topic) MWG Definition 6.C,1: a decision maker is a risk averter(or displays risk aversion) if for any lottery F( the degenerate lottery that yields the amount xdF(x)with certainty is at least as good as the lottery F( itself If the decision-maker is always(for any FO indifferent between these two lotteries, we say that he is risk neutral Finally, we say that he is strictly risk averse if indifference holds only when the two lotteries are the same(i.e when F(is
Risk Aversion– (New Topic) MWG Definition 6.C.1: A decision maker is a risk averter (or displays risk aversion) if for any lottery F(.) the degenerate lottery that yields the amount xdFx with certainty is at least as good as the lottery F(.) itself. If the decision-maker is always (for any F(.)) indifferent between these two lotteries, we say that he is risk neutral. Finally, we say that he is strictly risk averse if indifference holds only when the two lotteriest are the same (i.e. when F(.) is
degenerate) It follows directly from the definition that the decision-maker is risk averse if and only if: u(x)dF(x)<u(xdF(x)) This is Jensens inequality and it always hold is u(is concave
degenerate). It follows directly from the definition that the decision-maker is risk averse if and only if: uxdFx u xdFx This is Jensen’s inequality and it always hold is u(.) is concave