Uncertainty & Game Theory - Chapter 11
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Transcript of Uncertainty & Game Theory - Chapter 11
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Uncertainty & Game Theory
Chapter 11
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Topics
Risk and Uncertainty
Risk spreading
Insurance
Capital markets & risk sharing
Market failures in information
Moral haard
!d"erse selection
#undamentals of game theory
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Risk and Uncertainty
Risk & uncertainty
$efined%
Risk% the proaility of an ad"erse outcome
Uncertainty% proaility of different outcomes
'peculation% mo"ing goods across space
& time
Uses% smooths supply and prices
(edging% shedding risks
)conomic impact
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'peculators )"en *ut the +rice of
a Commodity o"er Time
Chapter 11
Figure 11-1
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'peculati"e 'torage Can
Impro"e )fficiency
Chapter 11
Figure 11-2
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Risk & uncertainty, cont-d.
!ttitudes to/ard risk% Risk a"erse
Risk lo"ing
Risk neutral
Insurance & risk spreading
Capital markets & risk sharing
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Risk & uncertainty, cont-d.
Market failures in information
!d"erse selection
The parale of the market for lemons
Moral haard
The principal0agent prolem
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Game theory% asic concepts
$efined% +layers choose strategies that ointly affect
each other
2ohn "on 3eumann & *skar Morgenstern 2ohn 3ash, 4! 5eautiful Mind6
5asic concepts
+layer oecti"es Rules of the game% mo"es
+ayoffs
solutions
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7hat (appens 7hen T/o #irms
Insist on Undercutting )ach *ther8
Chapter 11
Figure 11-3
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Game theory 9:;
5asic concepts, cont-d
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! +ayoff Tale for a +rice 7ar
Chapter 11
Figure 11-4
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'hould a $uopolist Try
the Monopoly +rice8
Chapter 11
Figure 11-5
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To Confess or 3ot to Confess,
That Is the +risoner-s $ilemma
Chapter 11
Figure 11-6
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3oncooperati"e 5eha"ior >eads
to More +ollution
Chapter 11
Figure 11-7
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7hen Too Many +eople )nter
Contests, 3ational Income Can #all
Chapter 11
Figure 11-8
C 11
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Countries Gain from Trade ut
>ose from Trade 7ar
Chapter 11
Figure 11-9
