Recordings of Independent Interest from the Course Risk and Ambiguity Course
Peter P. Wakker
Several recordings may be of interest on their own, and can be watched separately from the rest. They are listed below.
(They are all on
my youtube channel
in the Section "Course Risk & Ambiguity: Parts of Independent Interest".)
Allais paradox (20 minutes)
Normative discussion; most controversial debate on rationality in decision theory
Rabin’s paradox (13 minutes)
Shows how an expected utility analysis that ignores loss aversion can go very wrong.
Ellsberg paradox (6 minutes)
(≈ homebias from finance).
Shows that we have to reckon with ambiguity aversion and go beyond classical probability theory.
Bookmaking, arbitrage, and behavioral foundations (14 minutes)
(Uses some preference conditions defined elsewhere, but general message can be understood.) Importance/wide implications of de Finetti’s bookmaking theorem (no-arbitrage in finance; Bayesian statistics). To convince you that, as “homework for next week,” you should cancel all your small insurances, increasing your income by 0.5% for the rest of your life.
Also, general importance of preference foundations, normatively & descriptively
Medical application of expected utility (18 minutes)
Shows how expected utility is applied prescriptively to improve decisions; using simple hypothetical decisions (such as used in utility measurements) to clarify complex real decisions.