EBK MICROECONOMICS
12th Edition
ISBN: 9780100659452
Author: PARKIN
Publisher: YUZU
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Question
Chapter 20.1, Problem 4RQ
To determine
Calculate the cost of risk when decisions with an uncertain outcome are made.
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According to the text explain briefly how Risk Analysis helps the decision maker?
What does it mean to be Risk Averse?
If it is impossible to acquire sufficient information to make an informed decision, what can be the least risky option to take?
Using gut feelings
Not doing anything
Do something because something is always better than nothing.
Let someone else make the decision.
Chapter 20 Solutions
EBK MICROECONOMICS
Ch. 20.1 - Prob. 1RQCh. 20.1 - Prob. 2RQCh. 20.1 - Prob. 3RQCh. 20.1 - Prob. 4RQCh. 20.2 - Prob. 1RQCh. 20.2 - Prob. 2RQCh. 20.2 - Prob. 3RQCh. 20.2 - Prob. 4RQCh. 20.3 - Prob. 1RQCh. 20.3 - Prob. 2RQ
Ch. 20.3 - Prob. 3RQCh. 20.3 - Prob. 4RQCh. 20.4 - Prob. 1RQCh. 20.4 - Prob. 2RQCh. 20.4 - Prob. 3RQCh. 20 - Prob. 1SPACh. 20 - Prob. 2SPACh. 20 - Prob. 3SPACh. 20 - Prob. 4SPACh. 20 - Prob. 5SPACh. 20 - Prob. 6SPACh. 20 - Prob. 7APACh. 20 - Prob. 8APACh. 20 - Prob. 9APACh. 20 - Prob. 10APACh. 20 - Prob. 11APACh. 20 - Prob. 12APACh. 20 - Prob. 13APACh. 20 - Prob. 14APACh. 20 - Prob. 15APACh. 20 - Prob. 16APACh. 20 - Prob. 17APACh. 20 - Prob. 18APACh. 20 - Prob. 19APACh. 20 - Prob. 20APACh. 20 - Prob. 21APACh. 20 - Prob. 22APACh. 20 - Prob. 23APA
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- A risk-averse manager is considering a project that will cost £100. There is a 10 percent chance the project will generate revenues of £100, an 80 percent chance it will yield revenues of £50, and a 10 percent chance it will yield revenues of £500. Should the manager adopt the project? Explain. What will a risk-neutral and risk-loving manager do in the same situation?arrow_forwardIn what way does strategic decisions different from other kinds of corporate decision?arrow_forwardHow much is his risk on any random day due to late arrival?arrow_forward
- Define risk aversion and give an example of a risk-averse person?arrow_forwardIn a game, there are three values 1, 000, 2.500 and 5,000 and the cost of the game is 1, 500 . If each outcome has an equal probability of occurring, then what is the expected value of playing the game?arrow_forwardSuppose Xavier has tickets to the Super Bowl, but is terribly ill with a noncontagious infection. How would a decision maker perform his economic calculation on whether to attend the game, based on the traditional model of risk behavior?arrow_forward
- A wheel of fortune in a gambling casino has 54 different slots in which the wheel pointer can stop. Four of the 54 slots contain the number 9. For a 1 dollar bet on hitting a 9, if he or she succeeds, the gambler wins 10 dollars plus the return of the 1 dollar bet. What is the expected value of this gambling game? What is the meaning of the expected value result?arrow_forwardIf a risk-averse individual owns a home worth $100,000, and that individual is willing to pay $1,000 for an annual fire insurance policy that covers the entire loss in the event of a fire, then we know that?arrow_forwardUtility Theory You live in an area that has a possibility of incurring a massive earthquake, so you are considering buyingearthquake insurance on your home at an annual cost of $180. The probability of an earthquake damagingyour home during one year is 0.001. If this happens, you estimate that the cost of the damage (fully coveredby earthquake insurance) will be $160,000. Your total assets (including your home) are worth $250,000. A. Apply Bayes’ decision rule to determine which alternative (take the insurance or not) maximizes yourexpected assets after one year.arrow_forward
- What type of risk behavior does the person exhibit who is willing to bet $60 on a game where 20% of the time the bet returns $100, and 80% of the time returns $50? Is this a fair bet? Explain.arrow_forwardQuestion 13 Rhodri has a lottery ticket which will pay £80 with probability 0.5 and zero otherwise. He is willing to exchange the lottery ticket for a certain £25. What is the risk premium of the lottery ticket for Rhodri? Round your answer to 2 decimal places. Add your answerarrow_forwardA risk-eutral plaintiff in a lawsuit must decide whether to settle a claim or go to trial. The defendants offer $70,000 to settle now. If the plaintiff does not settle, the plaintiff believes that the probability of winning at trial is 40%. If the plaintiff wins, the amount awarded to the plaintiff is X. Will the plaintiff settle if X is $87,500? What if X= $280,000? What is the critical value of X that would make the plaintiff indifferent between settling and going to trial? If the plaintiff were risk averse instead of risk neutral, would this critical value of X be higher or lower? If the amount to be awarded at trial with a win (X) were $87,500, then the plaintiff would settle If the amount to be awarded at trial with a win (X) were $280,000, then the plaintiff would not settle The critical value of X that would make the plaintiff indifferent between settling and going to trial is $. (Enter your response using rounded to two decimal places.)arrow_forward
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