What does the phrase 'Economics is life' imply?
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It suggests that economic principles and concepts are deeply intertwined with everyday living and decision-making.
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What does the phrase 'Economics is life' imply?
It suggests that economic principles and concepts are deeply intertwined with everyday living and decision-making.
Who are the founders of Expected Utility Theory?
John von Neumann and Oskar Morgenstern.
What is the risk premium?
The maximum willingness to pay to eliminate risk.
What characteristic describes a player who follows the exponential discounting rule?
His behavior is time-consistent.
What are probabilities in the context of uncertain outcomes?
Numbers between zero and one that indicate the likelihood that a particular outcome will occur.
What does the Discounted Utility (DU) model aggregate over?
Utility aggregated over finitely many periods.
What does expected utility take into account?
The involved risk.
What rule does a player follow to evaluate his present-value utility?
The exponential discounting rule.
Which policies are influenced by decisions involving uncertainty?
Environmental, inequality, and safety policies.
What is the inequality that represents risk aversion?
E(U(Y)) < U[E(Y)]
What is the nature of the decision-making approach mentioned?
It is timeless and has a static structure.
What is the utility of reducing the temperature in your apartment in December?
What is a risk-averse attitude?
A preference for certainty and avoidance of risk.
What does risk describe in economic activities?
Any economic activity in which there are uncertain outcomes.
What topic will be covered next week?
Strategic interaction / game theory.
How does a risk averse person demonstrate their attitude towards risk?
By paying a premium to avoid uncertain outcomes.
What is the main focus of Expected Utility Theory?
To model decision-making under risk and uncertainty.
What concept should we think in terms of when evaluating risky outcomes?
Utility.
What is the formula for calculating the expected value of Y?
E(Y) = Pr1 * y1 + Pr2 * y2.
What is a common theme in life that affects decision-making?
Life is full of uncertainty.
How is the risk premium calculated?
As the difference between the expected value and the certainty equivalent.
What is the utility stream for saving energy?
(0, 1, 6)
Who coordinates the lectures and repeaters tutorial?
Linda Keijzer.
What does it mean for a decision maker to be risk neutral?
They are indifferent between certain income and uncertain income with the same expected value.
What does a player do when allocating a fixed budget across time periods?
Equates marginal utility from consumption across time, considering future periods are discounted.
What does it mean for a player's behavior to be time-consistent?
He will always stick to his plan of action.
Why is it important to understand a decision maker's preferences toward risk?
It helps in evaluating risky outcomes.
What is expected utility?
The sum of utilities of all possible uncertain outcomes, weighted by their probability.
What is the focus of the course ECB2VMIE?
Intermediate Microeconomics, Games and Behaviour.
What does it mean to be risk loving?
It means that the expected utility of a risky option is greater than the utility of the expected value of that option (E(UY) > U[E(Y)]).
What characterizes time-consistent behavior in a player?
Following the original plan in a later period.
In what year was the Expected Utility Theory published?
What is the expected value of the gamble mentioned?
€1600.
What rule does a player follow when evaluating present-value utility that leads to time inconsistency?
Hyperbolic discounting rule.
What is the equation representing risk neutrality?
E(U(Y)) = U[E(Y)]
What do risk-averse individuals prefer when faced with options of income?
They prefer the option with certain income.
What are the values used to calculate the risk premium in this example?
E(Y) = €1600 and CE = €1518.66.
What does it indicate if an individual prefers the guaranteed amount over the gamble?
The individual is risk averse.
What happens to Absolute Risk Aversion (ARA) as wealth increases?
ARA decreases.
What does δ represent in the Discounted Utility model?
An individual, subjective parameter.
What does the consumer have the option to do regarding interest rate r?
Borrow or lend.
How does consistent decision making relate to exponential discounting?
It involves making choices that reflect a stable preference over time, often influenced by discount rates.
What happens to Absolute Risk Aversion (ARA) as wealth increases?
ARA decreases.
What risky decisions do you take on a daily basis?
Personal reflection on daily risks.
What decision is made in November regarding energy use?
To save energy in December.
What are some areas where decisions involve uncertainty?
Investments, insurance, education, and policy.
What does it mean to be risk averse?
It means that a decision maker prefers certain income over uncertain income, given the same expected value.
What utility does the guaranteed amount of €1600 yield?
What happens when there is excessive damage to one part of the economy?
It ripples back to harm every other part.
What is exponential discounting?
A model that describes how people value future rewards less than immediate ones.
In risk neutrality, how does a decision maker view certain versus uncertain income?
They view them as equivalent if they have the same expected value.
What are risky outcomes associated with?
Probabilities.
What is the significance of discounting in time preferences?
It affects how future periods are valued compared to present consumption.
What is hyperbolic discounting?
A behavioral model that describes how people value rewards over time, often favoring immediate rewards over future ones.
What is the probability of winning €1000 in the gamble?
60 percent.
Where can students find course-related information online?
What is the probability of winning €2500 in the gamble?
40 percent.
What are the potential outcomes for Option 1?
€20,000 and €10,000.
What is the behavior of individuals with decreasing relative risk aversion as their wealth increases?
They hold a larger percentage of wealth in risky assets.
How do individuals assess outcomes in Expected Utility Theory?
By considering both the probability of outcomes and the utility derived from those outcomes.
What is the expected value of Job Option (2)?
€15,000.
What is the income from Job 1?
€20,000.
What is the budget left for the person at the beginning of period 2?
K2 = K - K1, where K2 = K2/3.
How is a person's utility expressed in this scenario?
U(Money) = Money
What is studied in Week 3?
Strategic interaction – sequential encounters.
What is the expected utility U(Y) given in the data?
What characterizes a 'time-consistent' individual?
They have stable preferences over time and maintain self-control.
What is the formula for expected behavior regarding actions taken at t1?
βδu1 + βδ²u2 > 0.
What happens to absolute risk aversion as wealth increases in increasing absolute risk aversion?
Individuals hold fewer euros in risky assets.
In constant absolute risk aversion, how does wealth affect the amount held in risky assets?
Individuals hold the same euros in risky assets as wealth increases.
What adjustment was made regarding the format of lectures for 2023-2024?
Lectures will be 'live' in addition to lecture clips.
How does the utility of the guaranteed amount compare to the gamble?
The utility of the expected value is greater than the expected utility of the gamble.
When will the course start in 2023-2024?
In week 36 instead of week 37.
What is the range of the discount factor δ in the DU model?
0 ≤ δ ≤ 1.
What is the utility of saving energy in November?
5/3
What is the main difference between exponential and hyperbolic discounting?
Exponential discounting assumes consistent preferences over time, while hyperbolic discounting shows changing preferences.
Who formalized the distinction between risk and uncertainty?
Frank Knight.
What is the utility of enjoying a warm apartment in December?
What role does microeconomics play in the social system?
It examines how economic decisions impact social welfare and community well-being.
What are the three types of risk attitudes?
Risk averse, risk loving (seeking), and risk neutral.
What is the utility of having a bad feeling and a high energy bill in January?
What is the 'beta' in the beta-delta model?
The parameter that reflects the degree of present bias in decision making.
What is a risk averse attitude?
An attitude where individuals prefer to avoid risk.
What is a common risk-related decision when it comes to gambling?
Buying a lottery ticket.
What is the relationship between expected behavior and actual behavior in the context of self-awareness?
Expected behavior is based on desired utility, while actual behavior may differ due to inconsistent time preferences.
What is the title of Frank Knight's book?
'Risk, Uncertainty, and Profit'.
What does MRS stand for in the context of inter-temporal choice?
Marginal Rate of Substitution.
What is a characteristic of a risk averse person?
They are willing to pay to avoid risk.
What does it mean to be risk averse?
It means preferring certainty over uncertainty and being willing to incur a cost to avoid risk.
How is expected utility calculated in the given example?
E(U(Y)) = 0.5 U(€30,000) + 0.5 U(€10,000).
What characterizes a risk-averse consumer's utility function?
A concave utility function.
What is the utility stream for heating?
(0, 4, 0)
What type of decision problems are highlighted?
Intertemporal decision problems.
What is the expected value of the gamble described?
€1600.
What is a key characteristic of intertemporal decision-making?
Actions taken today have future consequences.
What is the riskiest decision you have ever taken?
Personal reflection on a significant risk taken.
What is the probability associated with each option in the decision problem?
50% for each option.
When is the mid-term exam scheduled?
Friday, 4th of October, from 11:00 to 13:00.
How does Relative Risk Aversion (RRA) change with increasing wealth?
RRA remains constant.
How do risk attitudes affect stock market investments?
They influence portfolio choice.
How is the expected value calculated for this gamble?
E(Y) = 0.6 × €1000 + 0.4 × €2500.
How well are you insured against risks like fire in your house?
Personal assessment of insurance coverage.
What does it mean for a decision maker to be risk averse?
They prefer the option with certain income over uncertain income, given the same expected value.
What does it mean for a person to be risk-averse?
It means they prefer a certain outcome over a gamble with a higher or equal expected value.
What is the present value form of the budget line?
x1 + x2 / (1 + r) = K1 + K2 / (1 + r).
What does the term 'pseudo player' imply in this context?
It suggests a simulated or theoretical decision maker in the risk scenario.
What is the formula for expected consumption in t1?
𝑈1 = 𝑢1 − መ𝛽𝛿𝑢2.
What can be inferred about risk attitude when the certain income is 25 and the expected uncertain income is 20?
The risk attitude is uncertain; it cannot be clearly defined as risk averse or risk seeking.
What is r in the context of the inter-temporal budget constraint?
The discount or interest rate.
What does RRA stand for?
Relative Risk Aversion.
What is the expected utility calculation for €1000?
0.6 × €1000 = €600.
How is the Arrow-Pratt measure of Relative Risk Aversion (RRA) calculated?
RRA = Y * A(Y) = -Y * U''(Y) / U'(Y).
What is the expected utility calculation for €2500?
0.4 × €2500 = €1000.
What is the expected consumption formula for investment goods?
𝑈1 = 𝑢1 − 𝛽𝛿𝑢2.
What exists due to the possibility of saving and borrowing?
A financial market.
What are the safe and risky assets at a wealth of 400?
Safe assets: 50; Risky assets: 350.
Which Nobel Prize winners in 2016 are known for their contributions to microeconomics?
Oliver Hart and Bengt Holmström.
What model did O'Donoghue and Rabin introduce?
A formal model of partial naiveté regarding self-control problems.
What does it mean to be risk-loving?
A preference for taking risks and seeking out uncertain outcomes.
What characterizes a risk-neutral attitude?
Indifference to risk; decisions are based solely on expected outcomes.
Who is responsible for tutorials?
Annika Brown, Naina Kumar, Bruhan Konda, Daniel Mucci, Rindert Ruit, Nicola Sabatini, and Adriaan Willems.
What is the behavior of individuals with decreasing absolute risk aversion as wealth increases?
They hold more euros in risky assets.
What is one application of game theory mentioned?
Oligopoly theory.
What is the expected value of income from Job 2?
€20,000.
How does hyperbolic discounting relate to homework deadlines?
It explains the prevalence of hard deadlines for homework.
What are the probabilities associated with Job 2?
50% for each outcome.
What is the main assumption regarding human behavior in intertemporal choice?
Humans systematically underestimate future wants and prefer present income.
What three systems are interconnected in the context of finance and the economy?
Economic, social, and ecological systems.
What does U G = E(U(Y)) represent?
It shows that the utility of a gamble is equal to the expected utility of the outcomes.
What is the utility stream for heating?
(4, 0).
What type of reward is always preferred in exponential discounting?
A larger, later reward is always preferred over a smaller, sooner reward.
What type of exam is the mid-term exam?
Multiple Choice (MC).
What is the calculated utility of saving in December?
How do preferences change over time in hyperbolic discounting?
Preferences shift from favoring larger, later rewards to favoring smaller, present rewards.
How does interaction play a role in microeconomics?
It involves the way individuals and firms engage in economic exchanges.
In the example provided, what is the certain income that is preferred when the expected uncertain income is 20?
What is the Lagrangian for the utility function?
L = ln(x1) + δ × ln(x2) + δ² ln(x3) - λ(x1 + x2 + x3 - K).
What topic is addressed in Week 4?
Information imperfections in single encounters.
What occurs if 1 > መ𝛽 > 𝛽 regarding consumption in t1?
Underestimation of consumption.
What does the slope of the inter-temporal budget constraint represent?
The trade-off between consumption in different periods.
How is the certainty equivalent determined?
By equating the utility function to the expected utility and solving for income (or wealth).
What might indicate a risky approach to education?
Going to tutorials unprepared.
How can the utility formula be expressed using summation?
U₀ = u₀ + β ∑(t=1 to ∞) δᵗ uₜ.
What is the idea behind the discussion forum?
The text does not explain the purpose of the discussion forum.
What question arises regarding future outcomes?
What if I get it in the future?
Which Nobel Prize winner in 2009 is recognized for their work in microeconomics?
Elinor Ostrom.
What are the three types of risk attitudes a consumer can have according to the von Neumann-Morgenstern utility function?
Risk-averse, risk-neutral, and risk-loving.
What is the formula for calculating the risk premium?
E(Y) - CE.
What must economic agents do in the absence of a known probability?
Estimate probabilities based on frequency or subjective probability.
What does the model of hyperbolic discounting help explain regarding health clubs?
Subscriptions to health clubs/gyms.
What characterizes a risk-neutral consumer's utility function?
A linear utility function.
What does U G = E(U(Y)) represent?
It shows that the utility of the gamble is equal to the expected utility of the outcomes.
How does microeconomics relate to the economic system?
It analyzes how individual choices affect supply and demand, pricing, and resource distribution.
What characterizes a risk-loving consumer's utility function?
A convex utility function.
What is the utility of heating in November?
4/3
What is a key concept of Expected Utility Theory?
Individuals evaluate risky options based on the expected utility rather than expected value.
How does hyperbolic discounting apply to government policies?
It explains governments announcing climate and energy targets.
Why is this lecture not on campus?
The specific reason is not provided in the text.
What are the potential outcomes for Option 2?
€30,000 and €20,000.
What is the utility function of the individual in inter-temporal choice?
u(x1, x2).
What does Relative Risk Aversion (RRA) measure?
The degree of risk aversion relative to an individual's wealth level.
What happens to consumption in t1 if 1 > መ𝛽 > 𝛽?
Overestimation of consumption.
What is the difference between risk-averse and risk-seeking behavior in the context of Expected Utility Theory?
Risk-averse individuals prefer certain outcomes over uncertain ones, while risk-seeking individuals prefer uncertain outcomes with higher potential payoffs.
What does the discount factor δ represent?
δ = 1 / (1 + r), which discounts future value to present value.
What does ARA stand for in the context of wealth?
Absolute Risk Aversion.
What are your predictions for the 2024 US elections?
Personal predictions regarding the elections.
Is the same expected value always necessary to draw conclusions about risk attitude?
No, different certain incomes can lead to different conclusions about risk attitude even with the same expected value.
What is the expected consumption formula for leisure goods?
𝑈1 = −𝑢1 + መ𝛽𝛿𝑢2.
What financial activities are possible in this economic model?
Saving and borrowing.
How do economic agents allocate scarce resources?
They trade off (marginal) benefits against (marginal) costs.
What issues are addressed in Week 5?
Information imperfections in sequential encounters, including Adverse selection and Moral Hazard.
What are the safe and risky assets at a wealth of 200?
Safe assets: 50; Risky assets: 150.
What knowledge is important about others in decision-making?
What do I know about others?
What does it mean to have time-inconsistent preferences?
It means a person's preferences may change over time, and they may or may not be aware of this change.
What is a key characteristic of a player who uses hyperbolic discounting?
They have an incentive to revise their plan of action at a later point in time.
What week is being referred to in the course ECB2VMIE?
Week 1.
How are all economies described within a system?
As closed economies.
What does the delta model represent in decision making?
It quantifies the rate at which future rewards are discounted.
What is the certain income of Job Option (1)?
€20,000.
What does ARA stand for in the context of risk aversion?
Absolute Risk Aversion.
What aspect of pension plans is explained by hyperbolic discounting?
Default savings in pension plans.
How is the present value of utility (U0) calculated in the DU model?
U0 = u0 + δu1 + δ²u2 + ... + δᵗut + ...
What does U(Y) represent in the context of risk aversion?
The utility of wealth Y.
What are commitment 'devices'?
Tools or strategies used to help individuals stick to their long-term goals.
How is the expected value calculated in the given example?
E(Y) = 0.5 * (10,000).
What does U[E(Y)] signify in risk aversion?
The utility of the expected value of wealth Y.
What does rearranging the equation give?
x1 + x2 / (1 + r) = K1 + K2 / (1 + r).
How does Relative Risk Aversion (RRA) change with increasing wealth?
RRA decreases.
What is the relationship between wealth and the absolute amount of assets at risk?
The absolute amount of assets at risk increases with wealth.
What is the maximization problem for the individual?
max u(x1, x2) subject to x1 + (1/(1+r))x2 = K1 + (1/(1+r))K2.
What does ARA stand for in the context of risk aversion?
Absolute Risk Aversion.
What does hyperbolic discounting imply about future consumption?
It discounts all future consumption compared to present consumption.
What type of questions will be on the final exam?
Open questions.
What is the certainty equivalent (CE)?
The certain payoff that generates as much utility as the expected utility of the gamble.
What do the first-order conditions for maximization yield?
λ = 1/x2 and λ = 1/x3.
How does wealth affect ARA and RRA?
Wealth increases can change the combinations of ARA and RRA, but not all combinations are logically possible.
What is the actual consumption formula for leisure goods?
𝑈1 = −𝑢1 + 𝛽𝛿𝑢2.
How does present bias affect decision-making over three periods?
It can lead to discrepancies between expected and actual behavior due to inconsistent time preferences.
When is the mid-term exam scheduled?
After Week 4.
What does the equation U(Y) = E(U(Y)) signify?
It signifies that the utility of the certainty equivalent equals the expected utility of the gamble.
What evidence have economists gathered regarding preferences over time?
Preferences are unstable over time.
What does U P = U[E(Y)] signify in the context of risk aversion?
It indicates that the utility of the certain outcome is equal to the utility of the expected outcome.
What is present bias?
A tendency to favor immediate rewards over future ones.
What is stated about externalities within a system?
There are no externalities.
What characterizes a risk-averse person in terms of expected utility?
E(U(Y)) < U[E(Y)]
What are the probabilities and outcomes for Job Option (2)?
0.5 probability for €30,000 and 0.5 probability for €10,000.
What is the expected value of income from the second job in the example?
$20,000.
How is the degree of risk aversion related to a consumer's utility function?
It is related to the curvature of their utility function.
What is the primary implication of the delta model in economic behavior?
It suggests that individuals may prefer smaller, immediate rewards over larger, delayed ones.
What is the mathematical representation of the present value of utility in the DU model?
U0 = ∑(t=0 to T) δᵗ ut.
What is the risk premium for the risk-averse person in this scenario?
€81.34.
What is the utility function for allocating a fixed budget K across three periods?
U(x1, x2, x3) = ln(x1) + δ × ln(x2) + δ² ln(x3).
Which weeks does the mid-term exam cover?
Weeks 1, 2, 3, and 4.
How do you compare Job Option (1) and Job Option (2)?
Compare the certain income of €20,000 with the expected value of €15,000 for Job Option (2).
What type of job contract might reflect a person's risk attitude?
A job with a bonus contract.
When is the final exam scheduled?
Friday, 1st of November, from 13:30 to 16:00.
What choice is made in December based on utility calculations?
To heat the apartment.
How do I pass this course?
The text does not provide specific criteria for passing the course.
What role does time play in microeconomic analysis?
It influences choices and the evaluation of costs and benefits over different periods.
What are the probabilities associated with the outcomes in the gamble?
0.6 for €1000 and 0.4 for €2500.
How do economic, social, and ecological systems interact in microeconomics?
They influence resource allocation and decision-making processes.
What about the Blackboard material?
The text does not provide information regarding Blackboard material.
What topic is discussed in Week 7?
Social Context: Non-standard preferences.
What does x1 and x2 represent in the inter-temporal budget constraint?
x1 represents consumption in period 1, and x2 represents consumption in period 2.
What is the focus of Week 6?
Social Context and Moral Hazard, including intrinsic motivation and efficiency wages.
Which Nobel Prize winner in 2001 is known for their work in microeconomics?
George Akerlof.
What does microeconomics study?
The behavior of individuals and firms in making decisions regarding the allocation of resources.
When is the midterm test scheduled for 2023-2024?
In week 5 instead of week 6.
What are the two options available in the decision problem involving risk?
Option 1 and Option 2.
What does Expected Utility Theory help to explain?
It helps to explain how individuals make decisions under uncertainty.
What is the certainty equivalent in the context of risk aversion?
It is the guaranteed amount of money that a risk-averse person would accept instead of taking a gamble.
In hyperbolic discounting, what type of reward is preferred over time?
A smaller, present reward is preferred over a larger, later reward.
What does RRA stand for in the context of risk aversion?
Relative Risk Aversion.
What does intertemporal choice involve?
Economic trade-offs among costs and benefits occurring at different times.
What topic is covered in Week 1 of the course?
Uncertainty and time.
What is 'Knightian uncertainty'?
A term used to describe uncertainty where the likelihood of outcomes is unknown.
What systematic tendency do humans exhibit regarding future wants?
They tend to underestimate them.
What is the focus of Week 2?
Strategic interaction – single encounters.
What is present bias in decision-making?
A tendency to favor immediate rewards over future ones.
What is the budget constraint when r = 0?
x1 + x2 + x3 = K.
How does hyperbolic discounting affect decision making?
It leads individuals to make inconsistent choices over time, often prioritizing short-term gratification.
How does ARA change with wealth?
It remains constant regardless of changes in wealth.
What is the expected utility calculated from the gamble?
E(U(Y)) ≈ 38.97
How is the Arrow-Pratt measure of Absolute Risk Aversion (ARA) calculated?
ARA = -U''(Y) / U'(Y).
What does 'fully naïve' imply regarding self-control?
The individual has no awareness of their self-control problems.
What is the RRA when wealth is at 400?
87.5%.
What does 'sophisticated' mean in the context of self-control?
The individual is aware of their self-control problems and plans accordingly.
What is the formula for utility in hyperbolic discounting?
U₀ = u₀ + βδu₁ + βδ²u₂ + ... + βδᵗuₜ + ...
What do K1 and K2 represent in the inter-temporal budget constraint?
K1 represents resources in period 1, and K2 represents resources in period 2.
What is the interest rate denoted as in this model?
r.
When is the end-term exam scheduled?
After Week 7.
Which Nobel Prize winner in 1992 is known for work in microeconomics?
Gary Becker.
Who are the Nobel Prize winners in 2019 known for their contributions to microeconomics?
Abhijit Banerjee and Esther Duflo.
What do መ𝛽 and 𝛽 represent in the context of self-control?
መ𝛽 is the expected level of present bias, while 𝛽 is the true level of present bias.
What preference does a risk-loving decision maker exhibit?
They prefer the option with uncertain income over the option with certain income, given the same expected value.
What is the difference between risk and uncertainty?
Risk involves known likelihood of outcomes, while uncertainty involves unknown likelihood of outcomes.
What type of tutorials does Bruhan Konda conduct?
Honours tutorials.
What does U P = U[E(Y)] signify in expected utility theory?
It indicates that the utility of a risky prospect is equal to the utility of the expected value of that prospect.
What do the terms risk attitude, risk appetite, and risk tolerance describe?
An individual’s or an organization’s attitude towards risk-taking.
What are the income outcomes for Job 2?
€30,000 and €10,000.
What are incentives in microeconomics?
Factors that motivate individuals to make certain decisions.
What is the equation representing the relationship between x1 and x2?
x2 = K2 + (1 + r)(K1 - x1).
How is the expected value calculated for Job 2?
E(Y) = 0.5(€30,000) + 0.5(€10,000).
What does Absolute Risk Aversion (ARA) measure?
The degree to which an individual prefers certain outcomes over uncertain ones, regardless of wealth.
What is the formula for calculating the expected utility from the gamble?
E(U(Y)) = 0.6 × U(€1000) + 0.4 × U(€2500)
What role does risk attitude play in Expected Utility Theory?
It influences how individuals weigh potential outcomes and their associated probabilities.
What is the calculated utility of heating in December?
Will tutorial slides be shared?
The text does not specify whether tutorial slides will be shared.
What condition must be met for an action to be expected to be taken at t1?
The desired utility U1 must be greater than 0.
What remains constant as wealth increases in terms of assets at risk?
The relative amount of assets at risk.
What is the consumption of the composite good represented as?
(x1, x2).
How does RRA change with wealth?
It can vary depending on the level of wealth.
What models are discussed in Week 1 related to decision-making?
Discounted Utility Model (Exponential Discounting) and Beta/delta model (Hyperbolic Discounting).
What does the final exam cover?
All weeks.
What is the formula for the slope in the inter-temporal budget constraint?
– (1+r) K1 + (1/(1+r)) K2 / ((1+r) K1 + K2).
What concepts are explored in Week 3 regarding strategic interaction?
Sequential encounters, including GT, SPNE, and Oligopoly (Stackelberg).
What does substituting K2 = K2/3 reveal about consumption?
The person consumes x2 = x3 = K/3.
What is a key consideration when evaluating outcomes?
Do I know how much I get?
What concepts are covered in Week 7?
Non-standard preferences and beliefs, including Bounded Rationality and Prospect Theory.
Who won the Nobel Prize in 2002 for contributions to microeconomics?
Daniel Kahneman.
What is a 'naïve' person's belief regarding future preferences?
They believe that future preferences will be identical to current preferences (መ𝛽 = 1).
What does time inconsistency in behavior imply?
The player's preferences change over time, leading to different decisions at different points.
What is the calculated risk premium in this example?
€81.34.
What happens to relative risk aversion as wealth increases in increasing relative risk aversion?
Individuals hold a smaller percentage of wealth in risky assets.
What is the utility stream for saving energy?
(1, 6).
What problems are associated with temptation?
Issues of self-control.
What does the beta-delta model represent?
It represents the idea that individuals have different discount rates for immediate versus delayed rewards.
What does a risk-averse person prefer in terms of outcomes?
They prefer a certain outcome over a gamble with the same expected value.
How is a person's utility expressed in terms of money?
U(Money) = ln(Money).
How does microeconomics interact with the ecological system?
It assesses the impact of economic activities on environmental sustainability and resource conservation.
What is the numerical value of U(Y) given in the context?
What are the values of β and δ in the context of hyperbolic discounting?
β = 1/2 and δ = 2/3.
In risk aversion, how does the expected utility compare to the utility of expected wealth?
The expected utility is less than the utility of expected wealth.
How likely do you consider climate to change drastically by 2050?
Personal opinion on climate change predictions.
What are the two time periods considered in this economic model?
Period 1 (the present) and Period 2 (next period).
On which energy source would you bet to satisfy global needs by 2050?
Personal prediction on future energy sources.
What is the focus of Week 1 in the course content?
The single person decision problem: uncertainty and time, including Expected Utility Theory and Discounted Utility Model.
What is the expected value E(Y) in this context?
1518.66.
What is exam material?
The text does not clarify what the exam material includes.
What does it mean for behavior to be time-inconsistent?
It means an individual wants to deviate from their original plan at a later period.
What is covered in Week 6?
Social Context: Motivation and Norms.
Where do I find the articles?
The text does not specify where to find the articles.
What do U'(Y) and U''(Y) represent in the Arrow-Pratt measures?
U'(Y) is the first derivative of the utility function, and U''(Y) is the second derivative.
What is the percentage at risk when wealth is 400?
87.5%.
What are the safe and risky assets at a wealth of 100?
Safe assets: 50; Risky assets: 50.
What consideration is there regarding the actions of others?
What if my outcome depends on what others do?
What do y1 and y2 represent in the expected value formula?
They represent payoffs, such as income.
What is the utility of having a good feeling and a low energy bill in January?
What do Pr1 and Pr2 represent in the expected value formula?
They represent the probabilities of y1 and y2, respectively.
What does DARA stand for?
Decreasing Absolute Risk Aversion.
In constant relative risk aversion, how does wealth affect the percentage of wealth held in risky assets?
Individuals hold the same percentage of wealth in risky assets as wealth increases.
In which year did Frank Knight publish his book on risk and uncertainty?
How do you calculate the expected value for Job Option (2)?
Expected value = (0.5 * €30,000) + (0.5 * €10,000) = €15,000.
What do trade-offs refer to in economic decision-making?
The concept that choosing one option requires giving up another.
What leads to a wrong assessment of future consequences?
Inconsistent time preferences.
What does the 'delta' in the beta-delta model signify?
The parameter that represents the discount rate for future rewards.
What is the role of the decision maker in this risk scenario?
To choose between Option 1 and Option 2 based on the outcomes.
What does β represent in the context of self-awareness and self-control?
It represents an individual's level of self-control.
What happens to the Relative amount of assets at risk as wealth increases?
The Relative amount of assets at risk increases.
Why is information important in microeconomics?
It affects decision-making and market efficiency.
What does the slope of the budget constraint represent in inter-temporal choice?
MRS = - (1+r) * (x2/x1).
What condition must be satisfied for the maximization problem?
∂L/∂λ = x2 + x3 - K2 = 0.
What is the price of the composite good in both periods?
What does RRA stand for in the context of risk aversion?
Relative Risk Aversion.
What does the money income in this model consist of?
(K1, K2).
What is the percentage at risk when wealth is 200?
75%.
What does it mean if an individual has 'no self-control'?
They consistently fail to act in their long-term interest.
What is a key limitation of CRRA in relation to an increasing portfolio?
CRRA cannot exist with CARA for the same amount of risky assets.
Who is the Nobel Prize winner associated with microeconomics in 1993?
Douglass North.
What is the relationship between wealth and the Absolute amount of assets at risk?
The Absolute amount of assets at risk increases.
What does CRRA stand for?
Constant Relative Risk Aversion.
What is the course's effort requirement?
The specific effort requirement is not detailed in the text.
What characterizes a risk loving (seeking) attitude?
An attitude where individuals are willing to take on more risk for potential rewards.
What preference do humans have in terms of income?
A systematic preference for present income.
What is the maximization problem in period t=2?
L = ln(x2) + δ × ln(x3) - λ(x2 + x3 - K2).
How might a firm demonstrate its risk attitude?
By investing in R&D.
What is the ARA when wealth is at 100?
50%.
Is the utility allocation time consistent?
This requires further analysis of the discount factors and preferences.
What is the formula for actual behavior regarding actions taken at t1?
u1 + δu2 > 0.
What everyday decision might reflect a person's attitude towards risk?
Bringing an umbrella or not.
What is the solution for x2 and x3 after solving the system of equations?
x2 = x3 = K2/2.
What is the difference between 'partially naïve' and 'fully naïve' individuals?
Partially naïve individuals recognize some self-control issues, while fully naïve individuals do not recognize any.
Do I have to read the articles?
The text does not indicate whether reading the articles is mandatory.
What is the relationship between self-control and time inconsistency?
Time inconsistency often leads to self-control problems.
Who won the Nobel Prize in 1991 for contributions related to microeconomics?
Ronald Coase.
Who won the Nobel Prize in 2017 for their work related to microeconomics?
Richard Thaler.
In the context of partial naiveté, what does መ𝛽 < 1 signify?
It indicates that a person is aware they will have future self-control problems.
What does it mean to have a risk neutral attitude?
An attitude where individuals are indifferent to risk; they evaluate options based solely on expected outcomes.
What are the ranges for δ and β in hyperbolic discounting?
0 ≤ δ ≤ 1 and 0 ≤ β ≤ 1.
What is a common personal financial decision influenced by risk attitudes?
Buying insurance.
What is the main topic of Week 2?
Strategic interaction in single encounters, including GT, Nash Equilibrium, and Oligopoly.
What does the term β represent in the context of self-awareness?
The expected level of present bias.
What is the utility function used in the example gamble?
U(Y) = Y.
What are the key themes of Week 4?
Information imperfections in single encounters, including GT, BNE, and Auctions.
What is the final certainty equivalent calculated in the example?
CE = 1518.66.
Which Nobel Prize winner in 1986 is associated with microeconomics?
James Buchanan.
Who is the Nobel Prize winner associated with microeconomics in 2014?
Jean Tirole.
What characterizes a 'sophisticated' person in terms of preferences?
They correctly predict how their preferences will change over time (መ𝛽 = 𝛽).
What is the focus of Week 5?
Information imperfections in sequential encounters.
How is the Marginal Rate of Substitution (MRS) expressed mathematically?
MRS = - (∂u/∂x1) / (∂u/∂x2) = - (1 + r) * 62.
When is the retake exam scheduled?
Wednesday, 31st of January.
What is the expected utility calculated in the example?
E(U(Y)) ≈ 38.97.
How does the interest rate (r) affect the inter-temporal budget constraint?
It influences the trade-off between current and future consumption.
How is the value of an outcome assessed in a social context?
How do I value the outcome in a social context?
Which Nobel Prize winner in 2018 is associated with microeconomics?
William Nordhaus.
What does it mean if መ𝛽 > 𝛽?
It means the person underestimates the magnitude of their future self-control problems.
