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Lecture 17 - a Raise awareness by making people more risk...

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Lecture 17 1. Concave Utilities Function: risk averse person 2. Certainty equivalent: The value which provided with certainty provides the same utility as the EP  of the gamble. 3. EP(Gamble) - CE = Insurance Premium: maximum amount that a person is willing to give up in  order to avoid risks. ASSUMING: Risk averse population 1. Incumbent vs. Newcomer a. Bush vs. Kerry b. If risk averse, the voters would then chose the worse if the payoff is guaranteed. 2. Way that newcomer can raise own confidence  a. Say has higher payoff, claim high payoffs b. Increase the probability 3. Way that the incumbent that can raise own utility
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Unformatted text preview: a. Raise awareness by making people more risk averse. b. Makes the curve even more concave. Move the certainty equivalent to the left. c. Ie. Scare the people into believing the world is scarier than it really is. 4. Ways that the newcomer raise own Utilities, a. Flatten the curve b. Raise certainty equivalence 1. Single peak preferences : preferences are single peaked if they always rise and never fall off or vice versa. Unique point that provides the decision maker with a single peak in utility...
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