Week 4
In this week’s lecture I had to read the article called Decisions under risk and uncertainty (1): Utility measurement and expected utility
Theory

This article explained what made people make such risky decisions. And what was the outcome of them taking such decisions. The concept of decision making and uncertainty: utility measurement and expected utility is a straightforward understanding of the theory. However, Daniel Bernoulli’s idea of expected utility decayed the valuation of a risky venture as the sum of utilities from outcomes weighted by the probabilities of outcomes. Specifically, Bernoulli's assumption of diminishing marginal utility seemed to imply that, in a gamble, a gain would increase utility less than a decline would reduce it.
Consequently, many concluded, the willingness to take on risk must be "irrational", and thus the issue of choice under risk or uncertainty was viewed suspiciously, or at least considered to be outside the realm of an economic theory which assumed rational actors. Throughout reading this article I realised that it wasn’t as difficult to understand as I though but what mostly interested me is the fact knowing how decision can be made and under what circumstances make people take certain decision. I also realised that that each group members had their own interpretation of the theory even though they were working as a group.