Flashcards in Chapter 17 - Uncertainty and Asymmetric Information Deck (14):
The amount that comes from a possible outcome or result.
The sum of the payoffs associated with each possible outcome of a situation weighted by its probability of occurring.
fair game or fair bet
A game whose expected value is zero.
diminishing marginal utility
The more of any one good consumed in a given period, the less incremental satisfaction is generated by consuming a marginal or incremental unit of the same good.
The sum of the utilities coming from all
possible outcomes of a deal, weighted by the probability of each occurring.
Refers to a person’s preference of a certain
payoff over an uncertain one with the same expected value.
Refers to a person’s willingness to take a bet with an expected value of zero.
Refers to a person’s preference for an uncertain deal over a certain deal with an equal expected value.
The maximum price a risk-averse person will
pay to avoid taking a risk.
One of the parties to a transaction has information relevant to the transaction that the other party does not have.
A situation in which asymmetric information results in high- quality goods or high-quality consumers being squeezed out of transactions because they cannot demonstrate their quality.
Actions taken by buyers and sellers to communicate quality in a world of uncertainty.
Arises when one party to a contract changes behavior in response to that contract and thus passes on the costs of that behavior change to the other party.