Contents

(1) __ General Introduction__ (A)
Randomness in Economic Theory

(B) Risk, Uncertainty and Expected Utility

(2) **The Expected Utility Hypothesis**

(A) Bernoulli and the St.
Petersburg Paradox

(B) The von
Neumann-Morgenstern Expected Utility Theory

(i) Lotteries

(ii) Axioms of Preference

(iii) The von Neumann-Morgenstern Utility Function

(iv) Expected Utility Representation**
** (C) The Early
Debates

(i) Cardinality

(ii) The Independence Axiom

(iii) Allais's Paradox and the "Fanning Out" Hypothesis

(D) Alternative Expected Utility

(i) Weighted Expected Utility

(ii) Non-Linear Expected Utility

(iii) Preference Reversals and Regret Theory

(3)

(A) The Concept of Subjective Probability

(B) Savage's Axiomatization

(C) The Anscombe-Aumann Approach

(D) The Ellsberg Paradox and State-Dependent Preferences

(4) **The State-Preference Approach **

(A) State-Contingent
Markets

(B) The
Individual Optimum

(C) Yaari
Characterization of Risk-Aversion

(D) Application:
Insurance

(5)** The Theory of Risk Aversion**

(A) Expected Utility with Univariate Payoffs

(B) Risk Aversion, Neutrality and Proclivity

(C) Arrow-Pratt Measures of Risk-Aversion

(D) Application: Portfolio Allocation and Arrow's Hypothesis

(E) Ross's Stronger Risk-Aversion Measurement

(6)** Riskiness**

(A) First and Second Order Stochastic Dominance

(B) The Characterization of Increasing Risk

(C) Application: Portfolio Allocation

(D) Alternative Measures of Increasing Risk