tag:blogger.com,1999:blog-276948176099340997.post2958423614638882672..comments2014-07-30T16:10:40.451-05:00Comments on The Economics of Organizations - Fall 2012: Homework on Adverse Selection in Insurance MarketsProfessor Arvanhttp://www.blogger.com/profile/15256000730474030475noreply@blogger.comBlogger23125tag:blogger.com,1999:blog-276948176099340997.post-14153359945231292792012-10-09T21:28:57.675-05:002012-10-09T21:28:57.675-05:00I'm struggling to figure out how to find P. If...I'm struggling to figure out how to find P. If someone could help explain to find the value of P I would appreciate it. ThanksChristopher Pissarides ECON 490 fall 2012https://www.blogger.com/profile/08314007171518207017noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-25046512118947572892012-10-09T20:50:21.924-05:002012-10-09T20:50:21.924-05:00I only have one question left and its the separati...I only have one question left and its the separating policy for low risk types (the last question on the first half). Every time I press the arrows my mac freezes. Is anybody else having this problem? Kenneth Arrownoreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-64517354129927038912012-10-09T19:59:54.300-05:002012-10-09T19:59:54.300-05:00It may be natural to think of the premium as a fun...It may be natural to think of the premium as a function of the coverage - <br /><br />premium = fixed load + (variable load)*coverage<br /><br />However, in the graph the premium is on the horizontal axis and the coverage is on the vertical axis, so to make sense of the relationship as plotted the premium function must be inverted.Professor Arvanhttps://www.blogger.com/profile/15256000730474030475noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-17884156936045790392012-10-09T19:38:44.970-05:002012-10-09T19:38:44.970-05:00What do you mean by inverting the number/relations...What do you mean by inverting the number/relationship? kshttps://www.blogger.com/profile/06982420953796280876noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-81535248418654370282012-10-09T17:57:49.678-05:002012-10-09T17:57:49.678-05:00The risk premium is the expected dollar value of t...The risk premium is the expected dollar value of the lottery less the certainty equivalent.Professor Arvanhttps://www.blogger.com/profile/15256000730474030475noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-19130053114667043512012-10-09T17:41:45.005-05:002012-10-09T17:41:45.005-05:00I am confused on how to calculate the "risk p...I am confused on how to calculate the "risk premium" - what is the equation I need to use to find expected dollar amount? Abba Lernerhttps://www.blogger.com/profile/01454720165158149942noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-55558234679966777112012-10-09T17:27:10.612-05:002012-10-09T17:27:10.612-05:00Thank you! that helped me a lot!Thank you! that helped me a lot!Francishttps://www.blogger.com/profile/15369560955290984143noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-43579355087541744172012-10-09T17:17:45.955-05:002012-10-09T17:17:45.955-05:00That is correct. u takes income as its argument a...That is correct. u takes income as its argument an gives utility back. u inverse takes utility as its argument and gives income back.Professor Arvanhttps://www.blogger.com/profile/15256000730474030475noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-91984939986237005462012-10-09T15:35:52.840-05:002012-10-09T15:35:52.840-05:00When using the inverse, as Professor Arvan said, p...When using the inverse, as Professor Arvan said, plug in the answer you got for the Expected Utility for the values, not the values of W and L.William Baumol Econ 490 Fall 2012https://www.blogger.com/profile/01923669087072809804noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-34383506416076651912012-10-09T15:32:11.455-05:002012-10-09T15:32:11.455-05:00Yes, how did you figure this one out? I tried to d...Yes, how did you figure this one out? I tried to do the inverse as well, and it is not working for me!Elinor Ostromhttps://www.blogger.com/profile/16679539440977228970noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-43041042624114053642012-10-09T15:08:04.737-05:002012-10-09T15:08:04.737-05:00I figured this one out, if anyone needs any furthe...I figured this one out, if anyone needs any further help let me know!William Baumol Econ 490 Fall 2012https://www.blogger.com/profile/01923669087072809804noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-40277408549958446012012-10-09T14:20:48.226-05:002012-10-09T14:20:48.226-05:00I'm not sure how you use the inverse in that s...I'm not sure how you use the inverse in that situation however because of how large the numbers I'm getting are. Using x^(1/a) for me is the equivalent of x^(1/.005) -> x^200 which isn't a feasible number. Not sure where I'm going wrong?William Baumol Econ 490 Fall 2012https://www.blogger.com/profile/01923669087072809804noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-23701365281167987112012-10-09T12:53:00.338-05:002012-10-09T12:53:00.338-05:00I will answer this algebraically.
u(CE)= E(u(x))....I will answer this algebraically.<br /><br />u(CE)= E(u(x)). Therefore to find the CE you must take u inverse and evaluate that at E(u(x). Note that since u(x) = x^a, u inverse evaluated at x is x^(1/a).Professor Arvanhttps://www.blogger.com/profile/15256000730474030475noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-3425731546735795142012-10-09T11:43:15.334-05:002012-10-09T11:43:15.334-05:00I am at a lost on the 5th question finding the cer...I am at a lost on the 5th question finding the certainty equivalent of the original lottery. Wouldn't it be (20000-1350) ? Given that was the certainty equation for the original lotteryPhilip Azar https://www.blogger.com/profile/04479775020582578612noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-7162600804112759742012-10-09T11:18:31.608-05:002012-10-09T11:18:31.608-05:00Thank you! I figured it out. For the question imme...Thank you! I figured it out. For the question immediately after that, is the question asking if there is no insurance available, will the certainty amount of the original lottery be the same, whether or not there is insurance available?Elinor Ostromhttps://www.blogger.com/profile/16679539440977228970noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-22576177718017377712012-10-09T08:53:17.856-05:002012-10-09T08:53:17.856-05:00
The calculation you must do is (1-p)*u(2000) + p*...<br />The calculation you must do is (1-p)*u(2000) + p*u(1000) You are computing an expected utility, not the utility of some amount for certain.Professor Arvanhttps://www.blogger.com/profile/15256000730474030475noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-21605418905105291482012-10-08T23:20:44.733-05:002012-10-08T23:20:44.733-05:00Thanks, finally figured it out.
For question #3, ...Thanks, finally figured it out.<br /><br />For question #3, it is asking you to calculate total utility using the utility function given in the Excel spreadsheet. Right above it you calculate expected loss - so take initial wealth minus expected loss as they tell you and plug it in to the utility function!William Baumol Econ 490 Fall 2012https://www.blogger.com/profile/01923669087072809804noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-62585613124639751442012-10-08T22:16:00.464-05:002012-10-08T22:16:00.464-05:00I am having trouble with the question about what t...I am having trouble with the question about what the expected utility is when there is no insurance available. I tried entering 20000 and 10000 for x in the utility function, but they are both not working. I am not sure what to plug in for x. If someone could help me out, that would be great!Elinor Ostromhttps://www.blogger.com/profile/16679539440977228970noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-54150323166615918822012-10-08T21:40:27.656-05:002012-10-08T21:40:27.656-05:00Well, for the slope of the fair insurance line, it...Well, for the slope of the fair insurance line, it's not even an equation, you just have to invert the number. For low risk, it gives you a percentage so you just invert the figure in a decimal form. <br /><br />What I cannot figure out is question 3 where it asks for utility of wealth minus expected loss as a certainty. <br /><br />Hope this helpsFrancishttps://www.blogger.com/profile/15369560955290984143noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-17945551158075125952012-10-08T21:29:04.276-05:002012-10-08T21:29:04.276-05:00Not yet no because I'm not sure where the expe...Not yet no because I'm not sure where the expected coverage is coming from or what that equation would be. I do know how to invert the relationship and figure out things from there, just missing what expected coverage is.William Baumol Econ 490 Fall 2012https://www.blogger.com/profile/01923669087072809804noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-9806825472387752442012-10-08T21:24:59.567-05:002012-10-08T21:24:59.567-05:00Did you get the answer? If not, I can assist you f...Did you get the answer? If not, I can assist you furtherAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-51014365171214628962012-10-08T18:45:59.321-05:002012-10-08T18:45:59.321-05:00For fair insurance with no fixed load, the premium...For fair insurance with no fixed load, the premium equals the expected coverage. But note that the premium is plotted on the x-axis, so you need to solve for the coverage as a function of the premium, by inverting the relationship.<br /><br />The ballgame starts at 7. I will be offline during the game.Professor Arvanhttps://www.blogger.com/profile/15256000730474030475noreply@blogger.comtag:blogger.com,1999:blog-276948176099340997.post-52089644361547202682012-10-08T18:35:15.108-05:002012-10-08T18:35:15.108-05:00I think I'm missing something pretty easy, but...I think I'm missing something pretty easy, but I'm not sure how I am supposed to get the slope of a fair insurance line for a low risk type? Not sure if someone can break it down in to a simpler manner, but I guess I'm not sure what answer they're looking for.William Baumol Econ 490 Fall 2012https://www.blogger.com/profile/01923669087072809804noreply@blogger.com