Diversification, Information, and the Limits of Rationality

Pooling risks

The value of information

Allais and independence

Framing and small numbers

Pooling 16 uncorrelated risks each at 18 percent deviation leaves what deviation?

Crop A gives 100 in rain and 40 in drought, crop B the reverse, rain 50-50. What is the value of a perfect forecast in utility units?

Why does the Allais pattern violate independence?

A city rebuilds after a flood that statistics had priced at one-in-two-hundred years, and voters call the risk obvious in hindsight. Which bias is this?

With individual deviation 18 percent uncorrelated, compute the pooled deviation at n equals 4 in percent, and write the number.

Same risks at n equals 100, compute the pooled deviation in percent, rounded to one decimal, and write the number.

With individual deviation 18 percent uncorrelated, what deviation does a pool of 25 risks carry?

What happens to a pool of perfectly correlated risks, correlation of one?

In the Allais pair, the second choice offers a 10 percent shot at 5 million versus an 11 percent shot at 1 million. Which do most subjects take?

A surgery described as 90 percent survival draws more takers than the same surgery described as 10 percent mortality. Which effect is at work?

With crop payoffs 100 in rain and 40 in drought and v the identity, compute the value of a perfect forecast, and write the number.

With individual deviation 18 percent uncorrelated, compute the pooled deviation at n equals 36, and write the number in percent.