Risk Management 2 Utility and Decisions
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
Risk Management 2 Utility and Decisions
utility and decisions
If we have a utility function that translates from dollars to utility, how do we use it in deciding? The idea of utility is that it should help us choose among alternatives with uncertain outcomes—that is, alternatives that are risky—by capturing our attitudes toward risk. If I were risk neutral and willing to make decisions based on expected monetary value, my decision trees should use expected money as the criterion for the best alternatives. Utility theory says that I should be using expected utility as the criterion in order to capture what for most of us is risk aversion.
Consider an investment decision. You have three choices: (1) a high-risk investment, (2) a low-risk investment, or (3) keeping your money in the bank without risk. If the market goes “up,” the high-risk investment returns $1500 but the low-risk investment only returns $1000. Similarly, for the other uncertain outcomes shown in the decision tree below. The market can go up, down, or stay the same. The bank account is unaffected by the market. The corresponding probabilities of each outcome are shown. The expected monetary values (EMV) of the three alternatives are +$580, -$200, and $500, respectively.
Dollar value Utility $1500 1.00 1000 0.86 500 0.65 200 0.52 100 0.46 -100 0.33 -1000 0.00 The table on the right-hand side are the utility values you have assessed for yourself. What is your best alternative from an expected utility perspective? Compare this with the best alternative from EMV. Explain the difference, if any.
Risk transfer
Explain the purpose of reinsurance including, spreading risk, capacity, financial security, and capital management. Explain the difference between reinsurance and retrocession. Discuss alternatives to conventional reinsurance. Limit your answer to one page.
Place your bets
Here you also have an opportunity to earn extra credit. Select whether you want three (3) extra points or six (6) extra points added to your final score. You will receive what you choose.
Which do you want? ☐ Six points
☐ Three points
☐ None (I refuse to play)
But! There is a small catch: if more than 15% of the class (3 people) select six points, then those who do choose six points will get minus 2 points, and those who choose three points will get minus 1 point. Please don’t communicate your choice to others in the class! That would be cheating.
Explain your analytical thinking (this accounts for the original 33 points of this problem … the +3 or +6 are in addition).
John von Neumann, the father of Game Theory, Utility Theory, and Monte Carlo Simulation Method Draw on the many things you learned this semester in ENCE 627 to structure your argument.
Among whatever else you include, please cite considerations of …
- Human or psychological factors,
- Probability estimates and calculations,
- Risk and decision analysis, and
- Risk management factors
which form the basis for your thinking and how they influenced each of your decisions.
Be specific. Cite concepts and references as needed to support your argument. Show your calculations.
High Risk
Low Risk
Bank
Up
Down Same
Up
Down Same
RUBRIC
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. 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Structure of the Paper (worth 10% of total points) Zero points: Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. GET THIS PROJECT NOW BY CLICKING ON THIS LINK TO PLACE THE ORDER
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