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11 Cards in this Set
- Front
- Back
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Expected value of a gamble |
The sum of the possible outcomes of the gamble weighted by their probability of occurrence. |
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Fair gamble |
A gamble whose expected value is zero |
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Better-than-fair gamble |
One whose expected value is positive |
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Risk-neutral person |
Someone who would be willing to accept any fair gamble (or better than fair gamble) |
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Risk-averse person |
Someone who would refuse any fair gamble |
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Asymmetric information |
Where buyers and sellers are not equally informed about the characteristics of products or services |
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Lemons model |
George Akerlof's explanation of how asymmetric information tends to reduce the average quality of goods offered for sale. |
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Costly-to-fake principle |
To communicate information credibly to a potential rival, a signal must be costly or difficult to fake |
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Statistical discrimination |
The practice of making judgements about the quality of people, goods or services based on the characteristics of the groups to which they belong |
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Adverse selection |
The pattern in which insurance tends to be purchased disproportionately by those who are most costly for companies to insure. |
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Moral hazard |
The tendency of people to take greater risks when they are protected from the full consequences when the risk turns out badly. |
