# You will prepare and submit a term paper on Risk Aversion and the State Preference. Your paper should be a minimum of 2000 words in length.

You will prepare and submit a term paper on Risk Aversion and the State Preference. Your paper should be a minimum of 2000 words in length. An individual is a risk-averse if for any probability distribution the expected value of the distribution is preferred to the distribution itself. An individual who prefers a certain income rather than an uncertain one is said to be risk-averse. “In contrast, a risk-neutral person is one who is indifferent to all alternatives with the same expected value” (Katz and Rosen 1998, p.168). For the consumer, uncertainty in the economic market could relate to a combination of or any one of the following factors: income, product price, product quality, and product availability, besides future income, interest rates and inflation rates (McKenna 1986). According to Eeckhoudt and Gollier (1995), the inverse relationship between marginal utility and wealth in the context of expected utility, explains why the largest loss should be covered first through insurance. The State Preference and Machina Triangle Diagrams The State Preference and the Machina Triangle diagrams can be compared and contrasted, as indifference maps for risk-averse expected utility maximizers. The expected utility model as an approach to the theory of individual behavior towards risk is distinctive due to the simplicity of its axioms, employing utility function and mathematical expectation, its utility functions such as risk aversion by concavity characterizing its various types of behavior (Machina 1982). The expected utility hypothesis of behaviour towards risk is essentially that the individual decision-maker possesses a von Neumann-Morgenstern utility function U(.) or von Neumann-Morgenstern utility index U1 “defined over some set of outcomes, and when faced with alternative risky prospects over these outcomes will choose that prospect that maximizes the expected value of U(.) or U1 (Machina 1988) The State Preference approach can be applied naturally to Insurance, since it is a clear “state-contingent” contract, that is, it pays an indemnity if a loss occurs.

Don't use plagiarized sources. Get Your Custom Essay on
You will prepare and submit a term paper on Risk Aversion and the State Preference. Your paper should be a minimum of 2000 words in length.
Just from \$10/Page

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.