Describing risk, Microeconomics

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Describing Risk

* To measure risk we should know:

 1) All the outcomes which are possible.

 2) The probability that each outcome will occur.

* Interpreting Probability

- The probability of the given outcome to occur

* Interpreting Probability

- The probability which the given outcome will occur

- Objective Interpretation

  • Based on frequency which is observed of past events

- Subjective

  • Based on experience or perception with or without an observed frequency

-  Different information or abilities to process the same information can influence subjective probability 


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