Choice under Uncertainty:
In the basic theory about choice under certainty the consumer is assumed to be able to compare and rank all possible consumption bundles. But is this meaningful if the consumer is not certain that she will ever be able to consume any particular bundle? Somehow we must also take into account that with uncertainty different bundles have different probabilities of actually being available for consumption. A way of incorporating uncertainty is to imagine (just for the sake of the argument) that the objects of choice are not consumption bundles, but “lottery tickets” whose prizes are bundles of consumption goods, or more commonly, money prizes. Different lotteries have different probabilities of winning the various possible prizes, and individuals are assumed to know these probabilities and make their choices based on their preferences for consumption and attitudes toward risk taking.
Assume that we have three “lotteries” whose prizes are three sums of money: Y1 = $100, Y2 = $200, and Y3 = $500. If you won these prizes each time you played each lottery (and the cost of the lottery ticket is below $100) you would always prefer the third lottery, to the second, to the first, provided that you prefer more to less. But imagine that the probability of winning in the first lottery is 1/2 , while it is 1/4 in the second and only 1/10 in the third. Is it now obvious how you would choose among these three lotteries? (Assume that you are given the chance to participate in only one of these lotteries.)
A particular type of utility function is used to make such comparisons, and it’s called the von Neumann − Morgenstern utility function, or the expected utility function. This function is actually a combination of a utility function under certainty and the probabilities of the different prizes. First we have to specify a utility function when we receive the prizes with certainty, which we write u(Y), and then we multiply these functions with the respective probability. Hence, in our case the expected utilities of the three lotteries, called L1, L2 and L3, respectively,
U (L1) = (1/2) u (100) + (1/2) u (0),U (L2) = (1/4) u (200) + (3/4) u (0),U (L3) = (1/10) u (500) + (9/10) u (0).
Obviously to know which lottery a particular consumer/player will choose we have to know the form of the “certainty” utility function u(Y).
Latest technology based Economics Online Tutoring Assistance
Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Intermediate Microeconomics homework help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Intermediate Microeconomics, project ideas and tutorials. We provide email based Intermediate Microeconomics homework help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Intermediate Microeconomics. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Economics homework help and assignment help services. They use their experience, as they have solved thousands of the Computer assignments, which may help you to solve your complex issues of Intermediate Microeconomics. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.
radioactive decay processes tutorial all along with the key concepts of kinetics of radioactive decay, decay mode and energy, chain reaction, nuclear fusion reactor and nature of radiation
tutorsglobe.com exception to cell theory assignment help-homework help by online cell theory tutors
tutorsglobe.com plasmolysis assignment help-homework help by online absorption and movement tutors
tutorsglobe.com thrombosis assignment help-homework help by online blood cells tutors
An automatic Volume control is used in radio receiver additionally to the manual volume control. It gives stability to the output.
Theory and lecture notes of Double Integrals for Rectangles all along with the key concepts of double Simpson method, four corners method, center point method. Tutorsglobe offers homework help, assignment help and tutor’s assistance on Double Integrals for Rectangles.
tutorsglobe.com redox couple assignment help-homework help by online biological oxidation tutors
Textile Dyeing Process tutorial all along with the key concepts of Types of Dyeing Process, Special Features of Pad Batch Dyeing Process, Workings of a Cold Pad Dyeing Process
theory and lecture notes of bipolar junction diode ii, all along with the key concepts of forward bias conditions, reverse bias conditions, barrier potential, minority carrier concentration and ideal diode equation. tutorsglobe offers homework help, assignment help and tutor’s assistance on bipolar junction diode ii.
tutorsglobe.com significance of cash budgeting assignment help-homework help by online cash budgeting tutors
theory and lecture notes of markov algorithms all along with the key concepts of universal model of computation, algorithm design, recurrent issues and troubles in markov programming, reverse the input string, double the input string, serial binary adder. tutorsglobe offers homework help, assignment help and tutor’s assistance on markov algorithms.
tutorsglobe.com nitrogenous bases assignment help-homework help by online nucleic acid metabolism tutors
Metallurgy tutorial all along with the key concepts of Types of Furnaces used, Steps involved in Metallurgical Operations, Ore Dressing, Extraction of Crude metal and Purification of Metals
The issued share capital or allotted share capital is share capital that has been issued to shareholders.
tutorsglobe.com digestion in small intestine assignment help-homework help by online carbohydrates tutors
1945313
Questions Asked
3689
Tutors
1496426
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!