Thursday, September 27, 2012

Road Map for Next Three Weeks

This morning I put in calendar entries for all sessions through the first midterm.  Here I want to give a narrative to explain that and give you a heads up so you can best prepare outside of class.

We are talking about six class sessions where the sixth is the exam.  You'll have the full 80 minutes for the test.  I will write it with the aim that it takes half that time.  That day you should spread out around the room.  The exam format will be 2 problems/scenarios (each spreadsheet within a workbook corresponds to a possible scenario.  There will also be one essay question.  I will distribute 3 to 5 potential questions ahead of time.  The actual question will be selected  from one of those.

The Monday before the exam we'll have a review session so you can feel prepared for the test.  I will do no new content then.   There won't be a blog post due the prior Thurs., to free up in class-time for the review.  Students will drive that session via the questions they ask.  

That leaves four other sessions and we will go through those last to first.  On Wed. October 10, we will discuss information economics as it pertains in insurance markets and in that context consider adverse selection (hidden information) and moral hazard (hidden action).  This session will be based on an Excel homework that I'm committed to author and have ready by next Tuesday (10/2).   The content in this homework is fair game for the midterm.

On Mon. October 8, we will recycle back to transfer prices.  This session will be partly a discussion about student posts on Illini bucks, partly a discussion about non-price means of allocation as an alternative to transfer prices, and partly a discussion about off-the-top funding for a division as an alternative to transfer pricing.  We also want to review the Excel spreadsheet on transfer pricing from the homework.

On Wed. October 3, we will talk about the elements of risk and insurance.  I hope for most of you this is a review from intermediate micro.  My intent here is to spend a disproportionate amount of time on definitions of concepts.  Our best session so far was when we spent our time this way.  We'll also spend some time on a rudimentary model of insurance.  This will be based on material available here.

Next Mon., October 1,  we will continue the discussion about coordination in the presence of Knightian Uncertainty by talking about learning and decision making.  We'll consider the economics model of experimental consumption (or equivalently how a monopolist chooses price to learn about the  demand curve.  Then we'll consider non-economic approaches:  (1)  Steve Sample on Thinking Gray (Read the first pages through page 12.)  (2)  Malcolm Gladwell's Blink on Thin Slicing (Read the first pages through page 25.)  (3)  Daniel Kahneman on WYSIATI from Thinking Fast and Slow.

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