This video explains expected utility and three types of risk preferences: risk aversion, risk loving, and risk neutral, with a very simple example.
Пікірлер: 101
@Kgp-ty5dk2 жыл бұрын
There is no one on earth who can explain this concept in 7 minutes better than you. Kudos to you, Ma'am!
@IrisFranz2 жыл бұрын
Thanks!
@sabirbashir6304 Жыл бұрын
@@IrisFranz hello mam I am having issue solving two problems of macroeconomics. Could u help?
@nouman19374 ай бұрын
I cannot express my gratitude for this video. May God bless you. Beautifully explained !
@yunggoth85054 жыл бұрын
WORDS CANT DESCRIBE HOW MUCH YOUVE HELPED. MUCH THANKS.
@IrisFranz4 жыл бұрын
Glad to help. Happy learning!
@yunggoth85054 жыл бұрын
@@IrisFranz Please I have a request. Can you do a video on the chapter pure market securities? which includes how to optimally allocate their wealth in terms of consumption and investment using lagrange equation.
@robbenluo96494 жыл бұрын
KZbin videos are always my saviors. Thank you.
@IrisFranz4 жыл бұрын
Glad to help. Happy learning!
@ryabwong81563 жыл бұрын
Just wanna come by and say BIG THANK YOU to you
@IrisFranz3 жыл бұрын
Glad it helped!
@chaitanyagattamaneni6064 Жыл бұрын
The best video on the internet on this topic. Thank you
@vishnureddy18844 жыл бұрын
I searched many videos this is the best.
@IrisFranz4 жыл бұрын
Thanks!
@srimontoroy57146 ай бұрын
I am from Bangladesh. You are the best describer about this topic on the whole internet.
@samuelmovela72999 ай бұрын
I just can't see why your videos do not have many views like millions even after so many years since you published them. But believe you me, you are the greatest. As I type this, I have 1 hr 30 mins into exams, but I regret seeing your videos at am eleventh hour. I believe the little I have learned will help me. May you stay Higly blessed 🙌
@user-en2ct8ql4g2 ай бұрын
This is really great - please make more videos / I dont mind paying for subscription. Way better than my professor
@nataliyapiatachenko88813 жыл бұрын
Thank you a million times. So clear and laconic. Perfect!
@IrisFranz3 жыл бұрын
Glad it was helpful!
@mitrabor30434 жыл бұрын
Perfect perfect perfect.she is a master in economics . Thank u
@IrisFranz4 жыл бұрын
Thank you. Happy learning!
@ektajohnson81704 жыл бұрын
Great help for tomorrow's exam ....thanku very much 🤩
@IrisFranz4 жыл бұрын
Best luck to your exam!
@Nurj816 ай бұрын
Great, explanation. I get it.
@charliehou95533 жыл бұрын
Love You!!!
@haoxiangqi55814 жыл бұрын
Great demonstrations---also from UCSB. Thank u~
@IrisFranz4 жыл бұрын
Glad to help! Please share with those who find Varian’ intermediate micro challenging.
@bnarendrarao371 Жыл бұрын
Thanks a lot mam, concept is easily understandable
@GAURAV01548 ай бұрын
You are awesome ❤
@hamzawaseem94853 ай бұрын
Amazing
@karenrosa9406 Жыл бұрын
Wow. Thanks ! It's so clear.
@123fyn10 ай бұрын
Nicely explained 🎉❤ thank you it means a lot to the each learner 🎉
@sujoykumermondal8459 Жыл бұрын
thank you
@SaheedAyoadeBalogun Жыл бұрын
nice one!!!
@Kkone. Жыл бұрын
Great explanation, thank you !
@yureiawungshi99153 жыл бұрын
I love your teaching, new subscriber here 👍
@IrisFranz3 жыл бұрын
Thanks and welcome
@yongqiangqu99693 жыл бұрын
Very nice explanation! Thank you!
@IrisFranz3 жыл бұрын
You’re welcome. Happy learning!
@LinhLe-zy3hg3 жыл бұрын
Thank you, it’s very helpful!
@fluteworld86874 жыл бұрын
Ok I got it! Thankyou
@amlanbaishya28358 ай бұрын
Thanks mam❤
@changeme4542 жыл бұрын
Thanks a lot
@IrisFranz2 жыл бұрын
You’re welcome!
@saoemersonsilva Жыл бұрын
Thanks! Very clear. 🇧🇷
@davismotomiya292 жыл бұрын
Wealth u(W) = ROOT W, W=10, probability 0.3 to turn to 100, 0.7 to lose everything, wants to avoid risk, how much is he willing to pay? (0,1,2,3)
@superchicken18324 жыл бұрын
Hello, I'd like to ask how to know from just the utility function (when we're not given any values) whether it is a risk loving, averse or neutral? for example, by looking at √u(W) how to know what risk preference is it and what the shape of the curve will be. thank you very much!
@IrisFranz4 жыл бұрын
By taking the second (2nd) derivative of the utility function. If the second derivative is negative, risk averse. If it is zero, risk neutral. Positive, risk loving. Best luck!
@superchicken18324 жыл бұрын
@@IrisFranz thank youu so much!!!+
@IrisFranz4 жыл бұрын
Glad to help!
@Alexdasilva8722 жыл бұрын
sacado este video. saludos desde españa ❤
@nevamind68t232 жыл бұрын
Thank you for sharing 👍🏾
@IrisFranz2 жыл бұрын
You’re welcome!
@aabdelaal1684 жыл бұрын
You helped a lot , thanks professor
@IrisFranz4 жыл бұрын
You’re welcome!
@JJ-hq1eu2 жыл бұрын
Thank you so much for the videos :))
@kbuitienthinh3 жыл бұрын
Dear Professor Franz, thank you for your helpful and constructive lecture about the expected utility theory. May I have a few questions that I hope to receive your insights: 1) What does the first derivative of the U function have anything to do with the risk aversion/loving/neutral? For example, I understand that the risk aversion will have a negative second derivative and a positive first derivative, from which we can calculate the risk premium using Taylor expansion. So, is it a common rule to have a positive first derivative for, say, risk aversion? 2) What do you think are the common utility functions in the academic research? I just know a few, for example: The power utility function or the HARA function. 3) Can you explain the Archemidean axiom? Also, is this Archemidian axiom still in use, as I find it a bit weird when some older textbooks mentioned the Archemidean axiom while the more recent others didn't, in terms of the foundational axioms of expected utility theory that is. Thank you for your kindness for us the students. I wish the best for you and your loved ones during the Covid time :D .
@subhodwipchatterjee42264 жыл бұрын
excellent teaching.
@IrisFranz4 жыл бұрын
Thanks!
@the_milkyway64943 жыл бұрын
Thanks a million!
@IrisFranz3 жыл бұрын
You're welcome!
@nickspencer52342 жыл бұрын
This is great cheers
@kosiancraze41613 жыл бұрын
😘😍🥰thanks
@IrisFranz3 жыл бұрын
You're welcome!
@mewanchelangkisuchiang98613 жыл бұрын
Risk Neutral topic is not include in the book of Intermediate Micro by VARIAN...
@kfueitphotography66373 жыл бұрын
how can i find risk tolerance at current wealth? i have given a function also u'(w)=1/w and u''=-1/w2 while his wealth is $400.. please tell me
@aijaz65702 жыл бұрын
Hello how to make their marginal utility curve..
@IrisFranz2 жыл бұрын
Take the first order derivative.
@ancyjohn77504 жыл бұрын
Thank you
@IrisFranz4 жыл бұрын
You're welcome! Please share with those who find economics challenging.
@youssef76944 жыл бұрын
keep up the videos - from UCSB
@IrisFranz4 жыл бұрын
Thanks. I actually got my Econ PhD from UCI...😄
@saamarthyadav86743 жыл бұрын
loved it
@IrisFranz3 жыл бұрын
Thanks!
@mada_m3 жыл бұрын
Hello, professor, very insightful Given initial wealth, and 1/2 a chance to win or lose. How do I calculate the expected utility and also the expected gain?
@IrisFranz3 жыл бұрын
Notice that there is a difference between "expected value" and "expected utility". For the same utility with the same expected value, different people with different risk preference (determined by their utility function) have different expected utility.
@mada_m3 жыл бұрын
@@IrisFranz the question is as follows; An individual has a utility function given by (W) = W^1/2 and initial wealth of $100. If he plays a lottery in which he can win or lose $10 at the flip of a coin, compute his expected utility. What is his expected gain?
@anotherrohit3 жыл бұрын
Why is the utility equation formula changing each time? Shouldn't the formula for Utility function be constant no matter what type of risk a player is getting himself involved in?
@IrisFranz3 жыл бұрын
Good question. In this example, I am describing three different individuals. However, even for the same individual, a person is typically more risk loving when young, and then becomes more risk averse with age (do you know that West Virginia will pay young people $100 for getting the Covid-19 vaccine? Why not paying older people? Because older people are risk averse!) Furthermore, a person is typically risk averse when it comes to gain, but risk loving when it comes to loss- check “prospect theory” in behavioral economics.
@anotherrohit3 жыл бұрын
@@IrisFranz Thank you very much for the explanation. Can The marginal utility function ln(x) be generalized for all risk averse insurance premium calculations?
@IrisFranz3 жыл бұрын
ln(x) is monotonically increasing and concave, so it works for risk averse. Be careful, though- x must be greater than zero.
@MuhammadAli-bg4zr4 жыл бұрын
This is good initiative to teach, well explained dear
@mahdiaden74173 жыл бұрын
How did you get the formula where U(x)=square root (x)? Same for risk lover and risk neutral where u apply other formulas
@IrisFranz3 жыл бұрын
Anything that is monotonically increasing and concave would work for risk averse. Another example would be ln(x) for risk averse.
@kritikachandel73984 жыл бұрын
Perfect ❤
@IrisFranz4 жыл бұрын
Thanks and happy learning
@Datacrunch7774 жыл бұрын
Thankuu
@IrisFranz4 жыл бұрын
Glad to help. Please share with those who find economics challenging.
@robinettclan5464 жыл бұрын
Last comment I promise. Let me put it this way - the discovery is the same Simon Newcomb came across. Go to LinkedIn for my credentials. There will be a story to this.
@rivalcommando47773 жыл бұрын
Help!!! Maya's utility function is U(w)= 1- a/w Is this person risk averse or risk loving or risk neutral a>0 and w is wealth
@IrisFranz3 жыл бұрын
Is this a question from homework, take home exam, or something else? I don’t want to breach academic integrity, so here is a hint. Take the first and second order or derivatives to check. Or watch this clip. kzbin.info/www/bejne/oYawp2Sajq6pgtk Best luck!
@IrisFranz3 жыл бұрын
Yup. Second derivative is negative. You got it!
@rivalcommando47773 жыл бұрын
@@IrisFranz thank you so much
@robinettclan5464 жыл бұрын
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@dynaz72 жыл бұрын
According to expected value theory, which should you prefer: a) lose $40 b) 40% chance of losing $100 Can you please answer this question and give the reason why you choose that answer? I have exam tomorrow 🥲
@IrisFranz2 жыл бұрын
If you’re risk averse, a. If you’re risk loving, b. If you’re risk neutral, you’re indifferent between the two. Good luck with the exam.
@dynaz72 жыл бұрын
@@IrisFranz Your answer is according to expected utility theory right? But according to expected value theory, I need to choose the highest expected value and when I calculate the EV, both EV are 40..so, which one should I choose according to EV theory? Is it A?