lecture22

Lecture22 - file/H/econ251/econ251/content/sessions/lecture22.html Open Yale Courses ECON 251 Financial Theory Lecture 22 Risk Aversion and the

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Open Yale Courses ECON 251: Financial Theory Lecture 22 - Risk Aversion and the Capital Asset Pricing Theorem << previous session | next session >> Overview: Until now we have ignored risk aversion. The Bernoulli brothers were the first to suggest a tractable way of representing risk aversion. They pointed out that an explanation of the St. Petersburg paradox might be that people care about expected utility instead of expected income, where utility is some concave function, such as the logarithm. One of the most famous and important models in financial economics is the Capital Asset Pricing Model, which can be derived from the hypothesis that every agent has a (different) quadratic utility. Much of the modern mutual fund industry is based on the implications of this model. The model describes
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This note was uploaded on 02/08/2012 for the course ECON 251 taught by Professor Geanakoplos,john during the Fall '09 term at Yale.

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