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Von Neumann-Morgenstern Utility Function
The expected utility hypothesis is a popular concept in economics that serves as a reference guide for decisions when the payoff is uncertain. The theory recommends which option rational individuals should choose in a complex situation, based on their risk appetite and preferences. The expected utility hypothesis states an agent chooses between risky prospects by comparing expected utility values (i.e. the weighted sum of adding the respective utility values of payoffs multiplied by their probabilities). The summarised formula for expected utility is U(p)=\sum u(x_k)p_k where p_k is the probability that outcome indexed by k with payoff x_k is realized, and function ''u'' expresses the utility of each respective payoff. On a graph, the curvature of u will explain the agent's risk attitude. For example, if an agent derives 0 utils from 0 apples, 2 utils from one apple, and 3 utils from two apples, their expected utility for a 50–50 gamble between zero apples and two is 0.5''u''(0 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interactions of Agent (economics), economic agents and how economy, economies work. Microeconomics analyzes what's viewed as basic elements in the economy, including individual agents and market (economics), markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the economy as a system where production, consumption, saving, and investment interact, and factors affecting it: employment of the resources of labour, capital, and land, currency inflation, economic growth, and public policies that have impact on glossary of economics, these elements. Other broad distinctions within economics include those between positive economics, desc ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Constant Absolute Risk Aversion
In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more certain outcome. Risk aversion explains the inclination to agree to a situation with a more predictable, but possibly lower payoff, rather than another situation with a highly unpredictable, but possibly higher payoff. For example, a risk-averse investor might choose to put their money into a bank account with a low but guaranteed interest rate, rather than into a stock that may have high expected returns, but also involves a chance of losing value. Example A person is given the choice between two scenarios: one with a guaranteed payoff, and one with a risky payoff with same average value. In the former scenario, the person receives $50. In the uncertain scenario, a coin is flipped to decide whether the person receives $100 or nothing. The ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Neutrality (philosophy)
Neutrality is the tendency not to ''side'' in a conflict (physical or ideological), which may not suggest neutral parties do not have a side or are not a side themselves. In colloquial use ''neutral'' can be synonymous with ''unbiased''. However, bias is a favoritism for some side, distinct of the tendency to act on that favoritism. Neutrality is distinct (though not exclusive) from apathy, ignorance, indifference, doublethink, equality, agreement, and objectivity. Apathy and indifference each imply a level of carelessness about a subject, though a person exhibiting neutrality may feel bias on a subject but choose not to act on it. A neutral person can also be well-informed on a subject and therefore need not be ignorant. Since they can be biased, a neutral person need not feature doublethink (i.e. accepting both sides as correct), equality (i.e. viewing both sides as equal), or agreement (a form of group decision-making; here it would require negotiating a solution on everyone's ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Rationalism
In philosophy, rationalism is the epistemological view that "regards reason as the chief source and test of knowledge" or "any view appealing to reason as a source of knowledge or justification".Lacey, A.R. (1996), ''A Dictionary of Philosophy'', 1st edition, Routledge and Kegan Paul, 1976. 2nd edition, 1986. 3rd edition, Routledge, London, 1996. p. 286 More formally, rationalism is defined as a methodology or a theory "in which the criterion of truth is not sensory but intellectual and deductive".Bourke, Vernon J., "Rationalism," p. 263 in Runes (1962). In an oldJohn Locke (1690), An Essay on Human Understanding controversy, rationalism was opposed to empiricism, where the rationalists believed that reality has an intrinsically logical structure. Because of this, the rationalists argued that certain truths exist and that the intellect can directly grasp these truths. That is to say, rationalists asserted that certain rational principles exist in logic, mathematics, ethics, and ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Preference
In psychology, economics and philosophy, preference is a technical term usually used in relation to choosing between alternatives. For example, someone prefers A over B if they would rather choose A than B. Preferences are central to decision theory because of this relation to behavior. Some methods such as Ordinal Priority Approach use preference relation for decision-making. As connative states, they are closely related to desires. The difference between the two is that desires are directed at one object while preferences concern a comparison between two alternatives, of which one is preferred to the other. In insolvency, the term is used to determine which outstanding obligation the insolvent party has to settle first. Psychology In psychology, preferences refer to an individual's attitude towards a set of objects, typically reflected in an explicit decision-making process (Lichtenstein & Slovic, 2006). The term is also used to mean evaluative judgment in the sense of liking ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Frank Ramsey (mathematician)
Frank Plumpton Ramsey (; 22 February 1903 – 19 January 1930) was a British philosopher, mathematician, and economist who made major contributions to all three fields before his death at the age of 26. He was a close friend of Ludwig Wittgenstein and, as an undergraduate, translated Wittgenstein's ''Tractatus Logico-Philosophicus'' into English. He was also influential in persuading Wittgenstein to return to philosophy and Cambridge. Like Wittgenstein, he was a member of the Cambridge Apostles, the secret intellectual society, from 1921. Life Ramsey was born on 22 February 1903 in Cambridge where his father Arthur Stanley Ramsey (1867–1954), also a mathematician, was President of Magdalene College. His mother was Mary Agnes Stanley (1875–1927). He was the eldest of two brothers and two sisters, and his brother Michael Ramsey, the only one of the four siblings who was to remain Christian, later became Archbishop of Canterbury. He entered Winchester College in 1915 and later ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Diminishing Marginal Utility
In economics, utility is the satisfaction or benefit derived by consuming a product. The marginal utility of a good or service describes how much pleasure or satisfaction is gained by consumers as a result of the increase or decrease in consumption by one unit. There are three types of marginal utility. They are positive, negative, or zero marginal utility. For instance, you like eating pizza, the second piece of pizza brings you more satisfaction than only eating one piece of pizza. It means your marginal utility from purchasing pizza is positive. However, after eating the second piece you feel full, and you would not feel any better from eating the third piece. This means your marginal utility from eating pizza is zero. Moreover, you might feel sick if you eat more than three pieces of pizza. At this time, your marginal utility is negative. In other words, a negative marginal utility indicates that every unit of goods or service consumed will do more harm than good, which will le ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Decision-making Process
In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be either rational or irrational. The decision-making process is a reasoning process based on assumptions of values, preferences and beliefs of the decision-maker. Every decision-making process produces a final choice, which may or may not prompt action. Research about decision-making is also published under the label problem solving, particularly in European psychological research. Overview Decision-making can be regarded as a problem-solving activity yielding a solution deemed to be optimal, or at least satisfactory. It is therefore a process which can be more or less rational or irrational and can be based on explicit or tacit knowledge and beliefs. Tacit knowledge is often used to fill the gaps in complex decision-making processes. Usually, both of ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk Premium
A risk premium is a measure of excess return that is required by an individual to compensate being subjected to an increased level of risk. It is used widely in finance and economics, the general definition being the expected risky return less the risk-free return, as demonstrated by the formula below. Risk \ premium = E(r) - r_f Where E(r) is the risky expected rate of return and r_f is the risk-free return. The inputs for each of these variables and the ultimate interpretation of the risk premium value differs depending on the application as explained in the following sections. Regardless of the application, the market premium can be volatile as both comprising variables can be impacted independent of each other by both cyclical and abrupt changes. This means that the market premium is dynamic in nature and ever-changing. Additionally, a general observation regardless of application is that the risk premium is larger during economic downturns and during periods of increased u ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk Aversion
In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more certain outcome. Risk aversion explains the inclination to agree to a situation with a more predictable, but possibly lower payoff, rather than another situation with a highly unpredictable, but possibly higher payoff. For example, a risk-averse investor might choose to put their money into a bank account with a low but guaranteed interest rate, rather than into a stock that may have high expected returns, but also involves a chance of losing value. Example A person is given the choice between two scenarios: one with a guaranteed payoff, and one with a risky payoff with same average value. In the former scenario, the person receives $50. In the uncertain scenario, a coin is flipped to decide whether the person receives $100 or nothing. The ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Marginal Utility
In economics, utility is the satisfaction or benefit derived by consuming a product. The marginal utility of a Goods (economics), good or Service (economics), service describes how much pleasure or satisfaction is gained by consumers as a result of the increase or decrease in Consumption (economics), consumption by one unit. There are three types of marginal utility. They are positive, negative, or zero marginal utility. For instance, you like eating pizza, the second piece of pizza brings you more satisfaction than only eating one piece of pizza. It means your marginal utility from purchasing pizza is positive. However, after eating the second piece you feel full, and you would not feel any better from eating the third piece. This means your marginal utility from eating pizza is zero. Moreover, you might feel sick if you eat more than three pieces of pizza. At this time, your marginal utility is negative. In other words, a negative marginal utility indicates that every unit of good ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Nicolaus I Bernoulli
Nicolaus Bernoulli (also spelled Nicolas or Nikolas; 21 October 1687, Basel – 29 November 1759, Basel) was a Swiss people, Swiss mathematician and was one of the many prominent mathematicians in the Bernoulli family. Biography He was the son of Nicolaus Bernoulli, painter and Alderman of Basel. In 1704 he graduated from the University of Basel under Jakob Bernoulli and obtained his PhD five years later (in 1709) with a work on probability theory in law. His thesis was titled ''Dissertatio Inauguralis Mathematico-Juridica de Usu Artis Conjectandi in Jure''. In 1716 he obtained the Galileo-chair at the University of Padua, where he worked on differential equations and geometry. In 1722 he returned to Switzerland and obtained a chair in Logics at the University of Basel. He was elected a Fellow of the Royal Society of London in March, 1714. His most important contributions can be found in his letters, in particular to Pierre Rémond de Montmort. In these letters, he introduced in ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
