Samenvatting
Summary advanced environmental economics
- Instelling
- Wageningen University (WUR)
Summary of all Lectures about economics, including class notes and slides/pictures from the lectures.
[Meer zien]Voorbeeld 3 van de 18 pagina's
Voorbeeld 3 van de 18 pagina's
In winkelwagengesponsord bericht van onze partner
Voorbeeld van de inhoud
Advanced Environmental Economics and PolicyENP 32306
Script – Economics part
Anneli Janzer
, Theme 1 – Risk, expected utility and consumer choice
1. Introduction
• Economics=behaviour and decision making in situations of scarcity, risk and uncertainty. 2
perspectives:
• Positive analysis
• Normative analysis = how policies and decisions should look like
• Rational Choice model: Rationality=instrument
• objective of decision making is not questioned; you can be rational, although your choice might
seem weird in the eyes of others
• never confuse rationality with egoism! If you are rational, does not commit you to assume that
someone is only self-interested; if you are an altruist, you can still make rational decisions
2. Expected Utility Theory
• Assumes that people have preferences over risky choices
• Preferences must fulfil certain requirements in order to ensure that choices between risky
events are rational →the “von Neumann Morgenstern” Axoims:
o Completeness ensures that an individual can always decide between two alternatives
o Transitivity ensures that individuals act consistently (if x > y and y > z we must have x > z)
o Independence ensures that two lotteries, each mixed with a third one, are ordered in the same
way as when the two are presented independently of the third one.
o Continuity (if x > y and y > z we must have combination of x and z~y)
• If all axioms are satisfied:
• Preferences can be presented in a
Utility function
• It can be assumed that individual will
always choose most preferred
alternative available
• Set of actions (e.g. buy don’t buy)
and states of the world (possibilities)
• Well ordered preferences defined
over all possible outcomes
(probability distribution)
• People should choose the action
which maximizes their expected
returns
• You can use monetary values to make a Example
situation mathematically easier, but you don’t P= 80% probability that it is a good bike and 20% probability that it
have to is a bad bike
• Example: St. Petersburg Paradox →probability distribution
(coin toss game: head or tales); discrepancy between what people are willing to pay to enter
the gamble and the infinite expected returns
• Expected payoff= states of the world, can be indefinite=a lot of money (people bet on that game)
e.g. if you paid 20 Rubel, you have to have good chances to make profit!
• →although expected value is indefinite, people are not willing to bet a lot on a game like this (risk)
• People prefer actions which maximize their expected utility
• Expected utility of an action (buy/don’t buy) can be expressed as the probability weighted sum
of utilities of all states (good quality/bad quality)
1
, 3. Risk preferences
• A typical utility curve is assumed to be upward sloping and concave
• Example: Suppose that a consumer has $ 10 of wealth and is contemplating a gamble that
gives him/her the change of winning another 5$ with p= 0.5, or of loosing 5$ with p=0.5.
• The consumer prefers the certain expected value of the gamble over facing the uncertain
gamble (the utility of the expected value is higher than the expected utility of the gamble)
→the consumer is risk-averse
Suppose different shapes of the Utility function:
Expected utility= pA*U(A)+pB*U(B)
→decision might change if subjective probabilities
change
• Absolute vs relatve risk aversion
• risk aversion tells you how an individual and at
the end a society works
• younger people are less risk-avers than older
people! in demographically changed society (more
older people) the society becomes therefore
more risk averse
• also gender differences
• the more risk-averese the more criminal
2
Voordelen van het kopen van samenvattingen bij Stuvia op een rij:
Verzekerd van kwaliteit door reviews
Stuvia-klanten hebben meer dan 700.000 samenvattingen beoordeeld. Zo weet je zeker dat je de beste documenten koopt!
Snel en makkelijk kopen
Je betaalt supersnel en eenmalig met iDeal, creditcard of Stuvia-tegoed voor de samenvatting. Zonder lidmaatschap.
Focus op de essentie
Samenvattingen worden geschreven voor en door anderen. Daarom zijn de samenvattingen altijd betrouwbaar en actueel. Zo kom je snel tot de kern!
Veelgestelde vragen
Wat krijg ik als ik dit document koop?
Je krijgt een PDF, die direct beschikbaar is na je aankoop. Het gekochte document is altijd, overal en oneindig toegankelijk via je profiel.
Tevredenheidsgarantie: hoe werkt dat?
Onze tevredenheidsgarantie zorgt ervoor dat je altijd een studiedocument vindt dat goed bij je past. Je vult een formulier in en onze klantenservice regelt de rest.
Van wie koop ik deze samenvatting?
Stuvia is een marktplaats, je koop dit document dus niet van ons, maar van verkoper Annelija. Stuvia faciliteert de betaling aan de verkoper.
Zit ik meteen vast aan een abonnement?
Nee, je koopt alleen deze samenvatting voor €6,59. Je zit daarna nergens aan vast.
Is Stuvia te vertrouwen?
4,6 sterren op Google & Trustpilot (+1000 reviews)
Afgelopen 30 dagen zijn er 60904 samenvattingen verkocht
Opgericht in 2010, al 14 jaar dé plek om samenvattingen te kopen
