Presentasi Seminar Keuangan “The Utility Function of Choices Involving Risk”. Nama Kelompok : Matthew Gomies 37408003 Venny Dwiyanti 37408010 Inge Talia 37408018 Gentry DSG 37408039. Seseorang dapat mengurangi risk yang ada,misal insurance
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Presentasi Seminar Keuangan“The Utility Function of Choices Involving Risk”
Matthew Gomies 37408003
Inge Talia 37408018
Gentry DSG 37408039
II. OBSERVABLE BEHAVIOR TO BE RATIONALIZED
1.Those involving little or no risk about the money return to be received :
2. Those involving a moderate degree of risk but unlikely to lead to either extreme gains or loss :
3. Those involving much risk, with some possibility of extremely large gain or loss :
-Ex : Jobs with physical risks, like pilot, automobile racing, law and medical profession, business undertaking in untried fields, securities like highly speculative stocks.
• The willingness of persons to buy insurance ; it shows that he/ she is accepting the certain loss of a small sum ( insurance premium ) in preference to the combination of a small chance of a much larger loss ( the house/ something insured ) and a large chance of no loss.
• The willingness of persons to purchase lottery tickets ; it shows that he / she is subjecting him/herself to a larger chance of losing a small amount ( the prize of the lottery ticket ) plus a small chance of winning a large amount ( a prize ).
III. Formal Hypothesis
In choosing among alternatives open to it , whether or not these alternatives involve risk, a consumer unit behaves as if :
Von Neumann and Morgenstern alternative statement of the same hypothesis is An individual chooses in accordance with a system of preferences which has the following properties :
Preferences among alternatives A and a riskless alternative B consisting of a certain income I0
U (A) = aU(I1)+ (1-a) U (I2)
I(A) = aI1 + (1-a)I2
and indeed U-U(I) may be taken to measure the utility it attaches to this particular risk.
Describing a conceptual experiment for determining the utility function.
To get the utility attached to any income outside the interval $500 to $1000, say $10,000 .
IV. Restrictions on Utility Function Required to Rationalize Observable Behavior
VI. Further Implications of The Hypothesis