Chapter 5 Choice under Uncertainty Chapter Outline >Describing Risk Preferences Toward Risk >Reducing Risk >The Demand for Risky Assets
Chapter 5 Choice under Uncertainty Chapter Outline ➢ Describing Risk ➢ Preferences Toward Risk ➢ Reducing Risk ➢ The Demand for Risky Assets
So far,we have assumed that prices,incomes,and other variables are known with certainty. However,many of the choices that people make involve considerable uncertainty. Most people,for example,borrow to finance large purchases,such as a house or a college education,and plan to pay for them out of future income
So far, we have assumed that prices, incomes, and other variables are known with certainty. However, many of the choices that people make involve considerable uncertainty. Most people, for example, borrow to finance large purchases, such as a house or a college education, and plan to pay for them out of future income
But for most of us,future incomes are uncertain.Our earnings can go up or down;we can be promoted or demoted,or even lose our jobs.And if we delay buying a house or investing in a college education,we risk price rise increases that could make such purchases less affordable(担负得起的). How should we take these uncertainties into account when making major consumption or investment decisions?
But for most of us, future incomes are uncertain. Our earnings can go up or down; we can be promoted or demoted, or even lose our jobs. And if we delay buying a house or investing in a college education, we risk price rise increases that could make such purchases less affordable(担负得起的). How should we take these uncertainties into account when making major consumption or investment decisions?
Sometimes we must choose how much risk to bear() What,for example,should you do with your savings? Should you invest your money in something safe,such as a savings account(储蓄存款帐户)，or something riskier but potentially more lucrative(有利的，赚钱的)，such as the stock market?
Sometimes we must choose how much risk to bear(承担). What, for example, should you do with your savings? Should you invest your money in something safe, such as a savings account(储蓄存款帐户), or something riskier but potentially more lucrative (有利的，赚钱的),such as the stock market?
We will answer such questions by taking the following steps: In order to compare the riskiness of alternative choices,we need to quantify(量化)risk. We will examine people's preferences toward risk.Most people find risk undesirable(不受欢迎的，but some people find it more undesirable than others. We will see how people can sometimes reduce or eliminate risk.Sometimes risk can be reduced by diversification,by buying insurance,or by investing in additional information
We will answer such questions by taking the following steps: ✓ In order to compare the riskiness of alternative choices, we need to quantify (量化) risk. ✓ We will examine people's preferences toward risk. Most people find risk undesirable(不受欢迎的), but some people find it more undesirable than others. ✓ We will see how people can sometimes reduce or eliminate risk. Sometimes risk can be reduced by diversification, by buying insurance, or by investing in additional information