Chapter twelve Uncertainty
Chapter Twelve Uncertainty
Structure State contingent consumption(依情 形而定的消费) State-contingent budget constraint Preferences under uncertainty Choice under uncertainty Risk aversion Diversification and risk spreading
Structure State contingent consumption (依情 形而定的消费） State-contingent budget constraint Preferences under uncertainty Choice under uncertainty Risk aversion Diversification and risk spreading
Uncertainty is Pervasive What is uncertain in economic systems? tomorrow's prices future wealth future availability of commodities present and future actions of other people
Uncertainty is Pervasive What is uncertain in economic systems? – tomorrow’s prices – future wealth – future availability of commodities –present and future actions of other people
Uncertainty is Pervasive What are rational responses to uncertainty? buying insurance(health, life, auto a portfolio of contingent consumption goods
Uncertainty is Pervasive What are rational responses to uncertainty? –buying insurance (health, life, auto) – a portfolio of contingent consumption goods
States of Nature Possible states of nature: car accident(a) “ no car accident”(na) Accident occurs with probability n does not with probability Tna j a na Accident causes a loss of sl
States of Nature Possible states of Nature: – “car accident” (a) – “no car accident” (na). Accident occurs with probability a , does not with probability na ; a + na = 1. Accident causes a loss of $L