Figure 1 Probability Distribution
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Figure 1 Probability Distribution Probabilit y, % 20 10 40 Days ofr ain per month 0 1 2 3 4 10% 20% 40% 20% Probability distribution 10% 30 (a) Less Ce rtain Probabilit y, % 20 10 40 Days ofr ain per month 0 1 2 3 4 30% 40% 30% Probability distribution 30 (b) More Ce rtain
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Probability. Probability. dist. r. i. b. ution. dist. r. i. b. ution. Figure 1 Probability Distribution. (a) Less Ce. r. tain. (b) More Ce. r. tain. , %. , %. 40. 40. y. y. Probabilit. Probabilit. 30. 30. 20. 20. 10. 10. 20%. 40%. 20%. 10%. 30%. 40%. 30%. - PowerPoint PPT Presentation
Transcript of Figure 1 Probability Distribution
Figure 1 Probability DistributionP
rob
abili
ty,
%
20
10
40
Days of rain per month
0 1 2 3 4
10% 20% 40% 20%
Probabilitydistribution
10%
30
(a) Less Certain
Pro
bab
ility
, %
20
10
40
Days of rain per month
0 1 2 3 4
30% 40% 30%
Probabilitydistribution
30
(b) More Certain
Figure 2 Risk Aversion
Util
it y,U
Wealth, $10 26 40 64 70
a
b
d
e
U(Wealth)
U($70) = 140
0.1U($10) + 0.9 U($70) = 133
U($40) = 120
U($10) = 70
0
Risk premium
U($26) = 105
0.5U($10) + 0.5 U($70) =
c
f
Figure 3 Investment Decision Tree with Risk Aversion
Figure 4 Investment Decision Tree with Risk Aversion
(cont’d)
Figure 5 Investment Decision Tree with Uncertainty and
Discounting
Figure 6 Investment Decision Tree with Advertising
