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AntiMatter

  • 4 years ago

What would a risk-seeking person's utility curve look like? What would a risk-averse person's utility curve look like?

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  1. AntiMatter
    • 4 years ago
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    I guess, how do they compare to someone who is risk neutral

  2. dpflan
    • 4 years ago
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    Cool stuff, we have two functions for utility here: (1.) risk-seeking or risk-loving, and (2.) risk-averse. They are opposing concepts, so their functions will essentially be near inverses of each other.

  3. dpflan
    • 4 years ago
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    What happens when you're risk-averse?

  4. AntiMatter
    • 4 years ago
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    seems that you are willing to forgo opportunities to gain that have uncertain probabilities

  5. AntiMatter
    • 4 years ago
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    sorry, *unwilling

  6. dpflan
    • 4 years ago
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    heh, right, so risk-seeking is *willing

  7. dpflan
    • 4 years ago
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    If you had a gamble: say 50/50 you could win $10..so with p=.5 you could win $10, and with p=.5 you could win $0. So the expected pay out is (.5)*10 + (.5) * 0 = $5. A risk averse person would rather take a certain smaller amount than the expected amount then engage in the gamble.

  8. dpflan
    • 4 years ago
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    The expected utility of the gamble would be less than a value on that risk-averse person's utility curve (therefore within the area bound by the curve), and therefore of less utility. But for the risk-seeking person, it's the exact opposite situation. You'd almost have to pay the risk-lover to not take the gamble. Then the expected utility of the gamble would fall above the utility curve, and therefore of more greater utility

  9. dpflan
    • 4 years ago
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    |dw:1330492055083:dw|

  10. dpflan
    • 4 years ago
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    Risk averse, shows decreases increases in utility here

  11. dpflan
    • 4 years ago
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    |dw:1330492155490:dw| Risk loving shows increasing increases in utility here

  12. dpflan
    • 4 years ago
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    |dw:1330492198982:dw| Risk neutral is doesn't care!

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