The aim of this course is first to provide a grounding in the area of decision under risk adopting standard economic models. Using experimental evidence that shows how such models may miss some important features of decision making, the course will then present models that have been developed to reconcile the theory with the experimental evidence.
Objective and Subjective Uncertainty Expected utility theory Risk Aversion, certainty equivalent, risk premium. Measurement of Risk Attitudes: Theory (Arrow-Pratt etc.) Measurement of Risk Attitudes: Experiment (Comparison, Gender) Risk and returns: stochastic dominance State dependent utility Expected utility: violations and paradoxes Perception of probabilities: Probability weighting (Cumulative) Prospect Theory Reference dependent preferences Time preferences and hyperbolic discounting, Impulsivity Self-Control and Temptation a la Gul-Pesendorfer Myopic Loss Aversion Assets and Bubbles