Economics 397BB - ST-Econ of Risk & Uncertainty

The economics of risk and uncertainty examines how people, governments, and businesses make decisions when they don't know the future -- which is always. We will examine different ways of "not knowing the future", distinguishing between risk, when possible outcomes and their likelihoods are known, and uncertainty, when they are not. We will give some attention to risk perception and new research at the border between psychology and economics. We will look at financial-market risk and optimal individual responses such as asset diversification and credit default swaps, but we will also consider systemic risk, when the usual microeconomic rules break down. We will look at insurance markets, how they try to manage risk, and why they often fail. We will ask throughout how policy can help people manage their risky lives.

Pre Req: ECON 103 & 104 open to non-majors as of April 9