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MS 2220 Final CH 17

QuestionAnswer
the amount that comes from a possible outcome or result payoff
the sum of the payoffs associated with each possible outcome of a situation weighted by its probability of occuring expected value
A game whose expected value is zero fair game or fair bet
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 diminishing marginal utility
The sum of the utilities coming from all possible outcomes of a deal, weighted by the probability of each occuring Expected Utility
Refers to a person's preference of a certain payoff over an uncertain one with the same expected value Risk-averse
Refers to a person's willingess to take a bet with an expected value of zero Risk-neutral
Refers to a person's preference for an uncertain deal over a certain deal with an equal expected value Risk-loving
The maximum price a risk-averse person will pay to avoid taking a risk Risk Premium
One of the parties to a transaction has nformation relevant to the transaction that the other party does not have asymmetric information
A situation in which asymmetric information results in high-quality goods or high-quality consumers being squeezed out of transactions because they cannot determine quality adverse selection
Actions taken by buyers and sellers to communicate quality in a world of uncertainty Market signalling
Arises from 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 Moral Hazard
A contract or institution that aligns the interests of two parties in a transaction mechanism design
Created by: savelae
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