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MS 2220 Final CH 17
Question | Answer |
---|---|
the amount that comes from a possible outcome or result | payoff |
the sum of the payoffs associated with each possible outcome of a situation weighted by its probability of occuring | expected value |
A game whose expected value is zero | fair game or fair bet |
The more of any one good consumed in a given period, the less incremental satisfaction is generated by consuming a marginal or incremental unit of the same good | diminishing marginal utility |
The sum of the utilities coming from all possible outcomes of a deal, weighted by the probability of each occuring | Expected Utility |
Refers to a person's preference of a certain payoff over an uncertain one with the same expected value | Risk-averse |
Refers to a person's willingess to take a bet with an expected value of zero | Risk-neutral |
Refers to a person's preference for an uncertain deal over a certain deal with an equal expected value | Risk-loving |
The maximum price a risk-averse person will pay to avoid taking a risk | Risk Premium |
One of the parties to a transaction has nformation relevant to the transaction that the other party does not have | asymmetric information |
A situation in which asymmetric information results in high-quality goods or high-quality consumers being squeezed out of transactions because they cannot determine quality | adverse selection |
Actions taken by buyers and sellers to communicate quality in a world of uncertainty | Market signalling |
Arises from when one party to a contract changes behavior in response to that contract and thus passes on the costs of that behavior change to the other party | Moral Hazard |
A contract or institution that aligns the interests of two parties in a transaction | mechanism design |