Exam 14: Managerial Decision-Making Under Uncertainty

Taking actions that reduce risk

Expected value represents the average of all outcomes if one were to undertake the risky event many times over and over again.

Which of the following losses to an individual would an insurance company NOT cover?

A(n)________ relates each possible outcome to its probability of occurrence.

Explain why insurance companies usually do not offer earthquake insurance.

For a given expected value,the smaller the standard deviation of the expected value,the larger the risk.

If an individual makes her investment decisions based solely on the Expected Value criterion,one can conclude that she is

From the expected value of a game,we

After Hurricane Katrina,there was considerable public outrage that many of the properties were not insured against flooding although they were insured against wind damage.What might explain these different approaches to insurance?

If Stock A increases in value when Stock B decreases in value at the same time,they are

A risk-neutral individual will make investment decisions purely based on expected value because

If there are 10,000 people in your age bracket,and 10 of them died last year,an insurance company believes that the probability of someone in that age bracket dying this year would be

Which of the following games involving the roll of a single die is a fair bet?

Your friend Dimitre tells you that he thinks that his favorite basketball team has a 70% chance of winning the next game.This is an example of a(n)

Natasha is going to buy a risky asset that has an expected value of $62,which yields an expected utility of 146.Equivalently,she could get utility of 146 from a certainty equivalent of $43.What is Natasha's risk premium?

Farmers who purchase insurance against crop failures tend to be pooled with farmers far away.Why might this be the case?

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.The midpoint of the chord that runs from zero and intersects the utility function where wealth is 100,represents Bob's

You draw colored balls out of a bag.You draw a red ball 30% of the time and a blue ball 70% of the time.For each draw,the blue outcome and the red outcome are

Many people do not fully insure against risk because

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.What is the most Bob would pay for insurance that would replace his $100 should it be stolen?