101A_lec14 - Economics 101A (Lecture 14) Stefano DellaVigna...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 101A (Lecture 14) Stefano DellaVigna March 10, 2009
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Outline 1. Mid-Term Feedback 2. Risk Aversion and Lottery 3. Measures of Risk Aversion 4. Production: Introduction 5. Production Function
Background image of page 2
1 Mid-Term Feedback Thanks for the feedback!
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Risk aversion Risk aversion: individuals dislike uncertainty u concave, u 00 < 0 Implications? purchase of insurance (possible accident) investment in risky asset (risky investment) choice over time (future income uncertain)
Background image of page 4
Theorem. (Jensen’s inequality) If a function f ( x ) is concave, the following inequality holds: f ( Ex ) Ef ( x ) where E indicates expectation. If f is strictly concave, we obtain f ( Ex ) >Ef ( x ) Apply to utility function U. Individuals dislike uncertainty: U ( Ex ) EU ( x ) Jensen’s inequality then implies U concave ( U 00 0 ) Relate to diminishing marginal utility of income
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Experiment – Are you risk-averse?
Background image of page 6
3 Measures of Risk Aversion Nicholson, Ch. 7, pp. 209-213 (Ch. 18, pp. 541—
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/05/2009 for the course ECON 101a taught by Professor Staff during the Spring '08 term at University of California, Berkeley.

Page1 / 13

101A_lec14 - Economics 101A (Lecture 14) Stefano DellaVigna...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online