October 31 Lecture - -purpose of memo isnt to show off how much you know should contribute to decision making if a fact doesnt change anything about VA

October 31 Lecture - -purpose of memo isnt to show off how...

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October 31, 2012 -purpose of memo isn’t to show off how much you know, should contribute to decision making; if a fact doesn’t change anything about VA should do about marijuana, leave it out; include a list of all the things that could get better or worse on basis of decision being made then determine how an option affects them to decide which option has the best net result- The Principle of risk spreading : Budgeting implies diminishing marginal utility of income Diminishing marginal utility implies risk aversion Risk aversion implies utility gains from risk-spreading; both parties can gain from an agreement to share risk, and the reduction in uncertainty is worth something Every addition dollar attained should be spent on a less important goal than the dollar before it; thus in budgeting: first things paid first, things that come later aren’t important-every additional dollar is less beneficial than the dollar before it If that’s true ^ people should be risk averse and shouldn’t take large gambles at even odds, certain money equivalent on a gamble should be below its expected value and for losses, should be ready to pay for losses to be free of the risk *insurance companies are a type of risk-spreading institution, as is welfare (but not everyone using it pays a premium, funded by the general public) and family, banks, joint stock company, social security/pension funds (defined benefit: contract that says how much you get; defined
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  • Fall '11
  • Kleiman
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