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Exploring Riskiness Measures and Gambling Wealth in Decision Theory

Understand different riskiness measures in economic decision-making, such as Aumann and Serrano's index and Foster and Hart's operational measure. Explore the connection between buying/selling prices of lotteries and riskiness measures. Address the paradox of gambling wealth and issues like the WTA/WTP disparity. Learn about functions like Elog(W+x)-log(W) and the role of bankruptcy in risk assessment.

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Exploring Riskiness Measures and Gambling Wealth in Decision Theory

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Presentation Transcript

  1. DecisionTheory Lecture 13

  2. Riskinessmeasures and gamblingwealth • Riskinessmeasures – the idea and description • Aumann, Serrano (2008) – economicindex of riskiness • Foster, Hart (2009) – operationalmeasure of riskiness • Buying and sellingprice for a lottery and theconnection to riskinessmeasures • Lewandowski (2010) • Twoproblemsresolved by gamblingwealth • Rabin (2000) paradox • Buying/sellingprice gap (WTA/WTP disparity)

  3. The idea

  4. Quest for operationalmeaning

  5. Log is „the first” functiongoingfromabovethatassigns – infinity to bankruptcy

  6. Example

  7. f(W)=Elog(W+x)-log(W) Max loss W>R(x) W<R(x) W*=R(x)

  8. Lotterydillution

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