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Pavitar Parkash Singh, Lovely Professional University Unit-28: Economics of Risk and Uncertainty

Notes
Unit-28: Economics of Risk and Uncertainty

CONTENTS

Objectives
Introduction

28.1 Individual Consumer’s Behaviours Towards Risk

28.2 Risk Preference: Attitude Towards Risk
28.3 Gambling

28.4 Summary
28.5 Keywords

28.6 Review Questions
28.7 Further Readings

Objectives

After studying this unit, students will be able to:
• Know the individual consumer’s behavior towards Risk.
• Explain about the gambling.
• Study about the insurance.
• Know about the assets portfolio selection.

Introduction

Uncertainty is a factor of human life. So, there is risk in all financial transaction. Wherever, there is
uncertainty, there is risk. This is important to know the difference between uncertainty and risk. Risk
is a situation, in which the probability of an incident can be measured. On the other side, uncertainty
is a situation, where the probability cannot be measured. So, here are one or more incidents in the
situation of risk and the risk taker is aware about the all possible incidents and know about the
probability of every incident. In the situation of uncertainty, we neither know the right nature of
incidents nor can distribute the probabilities. There is uncertainty in the real life and in lots of objects
and services, like the investments in share and stock, insurance and gamble etc. So, such decisions
would be taken whose result cannot be known prior.
Before the analysis of the theory of risk, it would be beneficial to understand the assumptions that to
be used in this experiment.

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