The aim of this module is to develop a theoretical understanding of choice behavior under uncertainty. Models on how agents make decisions in situations with uncertainty are discussed. We first discuss classical expected utility theory, then recent approaches to the choice behavior of decision makers.
Topics:
- Preferences over lotteries
- Expected Utility theory
- Allais Paradox, Ellsberg Paradox, Machina Paradox
- Risk Aversion
- Risk Management
- Consumption and savings
- Elements of prospect theory