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Week 7: Decisions and Asymmetric Information
Chapter 17: Making Decisions With UncertaintyChapter 18: AuctionsChapter 19: The Problem of Adverse SelectionChapter 20: The Problem of Moral HazardMaking Decisions With UncertaintyAfter watching the video below, click the tabs above to view more learning resources forthe week.Learning ObjectivesIdentify the three benefits of modeling uncertaintyUse a decision tree to model uncertaintyMaking Decisions With UncertaintyHow do you make decisions when you face uncertain events? Examine how to calculateexpected benefits and costs and model uncertainty using a decision tree.Bidding DecisionsAfter listening to the podcast below, click the tabs above to view more learning resourcesfor the week.Learning ObjectivesList and describe the main attributes of each auction type and the inherent trade-offs ofeachBidding DecisionsIn many industries, managers must submit bids to win contracts. What are the key featuresof bidding and the different types of auctions? What are the inherent trade-offs of eachtype?Transcript1. What are the four types of auctions?2. In an oral or English auction, who does the item go to?3. What is another term for a second-price auction?4. How is the item awarded in a sealed-bid auction?
5. What does a common-value auction suffer from?Adverse SelectionAfter watching the video below, click the tabs above to view more learning resources forthe week.Learning ObjectivesExplain the consequences of adverse selectionProvide examples of adverse selection and how to solve itAdverse SelectionWhen one party has more information than another, the likelihood of consummating high-risk business transactions increases. How do you anticipate this and protect yourself?Moral HazardAfter watching the video below, click the Next button to view this week's discussion board.Learning ObjectivesDescribe the moral hazard problemDistinguish adverse selection from moral hazardMoral HazardMoral hazard refers to post-transaction incentives to engage in riskier behavior. You willidentify how to anticipate moral hazard and explore solutions such as monitoring andchanging incentives.Week 7 DiscussionDescribe either an adverse selection or moral hazard problem a company is facing. What isthe source of the asymmetric information? Who is the less-informed party? Are there anywealth-creating transactions not consummated as a result of the asymmetric information? Ifso, could you consummate them? What advice/recommendations would you give thecompany? Post your answer to the discussion board.Response Parameters
The discussion board will be set in Canvas to require students to contribute their ownresponse to the prompt prior to reading what classmates have posted. Each student willsubmit an initial response posting to reflect on all aspects of the prompt. Conclusions mustbe defended with evidence in appropriate APA format, which means both in-text and end-of-text citations should be included.