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March 08, 2005
Utility-Based Valuation of Risk
Critical Assumption: Agents care about expected utility, not expected dollars.
A path not taken: log utility. While mathematically elegant, the log function makes working with zero dollars difficult, is not found on as many calculators as is the square root function, and does not lend itself to lectures sans calculator.
Posted by bparke at March 8, 2005 10:18 PM