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Decision under uncertainty
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Teacher:  Xiangyu QU

E-mail:  [email protected]
ECTS: 2.5
Evaluation:   written exam
Previsional Place and time: 
Prerequisites:  
Aim of the course: This course will examine how economic individuals make decisions under uncertainty. It will examine the various ways in which individuals represent the phenomenon of uncertainty, the fundamental principles of choice under uncertainty, the concepts and measurement of “ambiguity” and “ambiguity aversion”, and the analysis of how these features influence individual behavior.
 Syllabus: 

1. The Representation of Uncertainty
   1. Objective Uncertainty: Outcomes, Probabilities, Lotteries and Decision Trees
   2. Subjective Uncertainty: States, Events, Acts and Payoff Tables
   3. Mixed Subjective-Objective Uncertainty: “Horse/Roulette Lotteries”
2. Expected Utility under Objective Uncertainty
   1. Expected Utility Preferences over Objective Lotteries
      1. von Neumann-Morgenstern Utility functions and expected utility formula
      2. Properties of Expected Utility Preferences
      3. The Triangle Diagram
   2. The Axioms of Expected Utility Theory
      1. Completeness and Transitivity
      2. Mixture Continuity
      3. The Independence Axiom
   3. The Expected Utility Representation Theorem
3. Expected Utility under Subjective Uncertainty
   1. The State-Preference Framework
   2. Expected Utility Preferences over Subjective Acts
   3. Savage’s Characterization of Subjective Probability and Expected Utility
4. Evidence on the Underlying Assumptions
   1. Evidence on the Independence Axiom
   2. Evidence on Stability of Preferences
5. Non-Expected Utility Models of Preferences
   1. Prospect Theory
   2. Rank-Dependent Expected Utility
   3. Expected Regret
6. Non-Bayesian Utility Models of Preferences
   1. Choquet Expected Utility
   2. Maxmin Expected Utility

 
References: Provided in the class
Last year exam: 

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