Explain the logic underlying the Gary Becker model, maximum fine/low probability result. Identify a realistic consideration (besides risk -aversion) that Gary Becker model ignores, and whose incorporation can lead to non-maximal fines being optimal.

Discuss how one is able to describe the riskiness of the decision-taker’s situation in ways which are intuitively appealing and analytically tractable.

Define the term Aggregating Risk over time?

1) Explain the importance of continuous variables. 2) How do we define the probability P(X) of a continuous random variable? Provide two examples of continuous random variables. 3) Explain what is meant by a discrete random variable (X), its expected value and standard deviation. 4) What is the usefulness of the Central Limit Theorem?

In the Hawaiian Beach Boy surf board vendor scenario, what if the fine was increased to $190 but the probability of a fine decreased to one in 20 days, 5%?  What would be the expected value – Exp(RS) --  of continuing to rent surfboards?  Assume the other numbers stay the same.  He makes $300/day and to rent boards from friends costs him $100 a day.  So, he makes $200 a day.  Write out the expected value formula, plug in the numbers, and show the math.  Hint: the Exp(RS) should be higher than the previously calculated $160.

Global Gas International offers to contract the Halidurton Heavy Construction Corporation to build an oil pipeline from Canada to New Orleans that will provide Halidurton $500 million in income. The probability that the oil pipeline will leak, causing environmental damage is 0. If so, the legal liability will be $2,500 million. If Halidurton is risk neutral and liable for the damages from a leak, what is the 0 such that it is indifferent between accepting and rejecting the contract? Halidurton is indifferent between accepting and rejecting the contract if 0 equals rounded to the nearest whole number.) percent. (Enter your response

Define the term Risk Analysis?

Which of the following statements regarding risk objectives for an investor is incorrect. a) Institututional investors risk objectives must include downside risk measure(s) b) Risk measures could be absolute or relative risk measure. c)Institutional investors risk objectives must consider the willingness and the ability to take risk. d) Risk objectives can include more than a single constraints. e) Retail investors risk objectives must consider the willingness and the ability to take risk.

A risk-averse individual experiences an adverse event with probability of 2% (0.02) that costs $1000. How much insurance coverage will the individual purchase if premiums are actuarily fair?   a-some amount more than $1000 b-$1000 c-$0 d-some amount greater than $0, but less than $1000   The government of Stratospheria is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR=55-0.02Q. Fun Cable Company is interested in bidding for the right to provide cable service in Stratospheric. It has a constant average and marginal cost of RM5 for providing cable service to each household. 2.4) What is the most Fun Cable Company would bid for the franchise? 2.5) At what level of output (number of households) is…

Ex-ante risk (such as adverse selection) is greater than ex-post risk (such as moral hazard) True False