The following points highlight the top four statistical methods used for measuring risk. The methods are: 1. Probability 2. Expected Value 3. Variability or Dispersion 4. Standard Deviation (SD). Statistical Method # 1. Probability: If we toss an unbiased coin, we would obtain any one of two outcomes—head and tail. If we toss the coin quite a good number of [...]
The willingness to bear risk is not the same for all persons. Here we may speak of three types of persons: (i) For some persons, as income rises, marginal utility (MU) of income diminishes. As we shall see, they do not like to take risk. They are risk-averse. (ii) For some other persons, as income rises, MU of income also [...]
Let us suppose that the budget line of two persons are the same—this line is given in Fig. 7.7. Let us also suppose that one of these persons (A) is more risk-averse than the other (B). Therefore, the ICs of A would be steeper like ICA than those of B whose ICs would be like ICB. Now, since A's ICs [...]