The Math Forum

Search All of the Math Forum:

Views expressed in these public forums are not endorsed by NCTM or The Math Forum.

Math Forum » Discussions » sci.math.* » sci.math

Notice: We are no longer accepting new posts, but the forums will continue to be readable.

Topic: Linear approximation to certainty equivalent for small-valued random variable
Replies: 3   Last Post: Nov 21, 2012 5:21 PM

Advanced Search

Back to Topic List Back to Topic List Jump to Tree View Jump to Tree View   Messages: [ Previous | Next ]

Posts: 1,412
Registered: 12/3/04
Re: Linear approximation to certainty equivalent for small-valued random variable
Posted: Nov 18, 2012 3:37 PM
  Click to see the message monospaced in plain text Plain Text   Click to reply to this topic Reply

In article
Paul <> wrote:

> I'm following Keeney's interpretation of risk aversion at
> For a lottery involving the addition of a
> small-valued zero-mean random variable x~ to a (presumably much
> larger) offset x0, the definition of risk premium (equation 4.15) is
> Taylor expanded (4.16 and 4.17) before dropping all terms beyond first
> order (4.18).
> I can see why this is justified in 4.17, but I'm not 100% sure in
> 4.16. Usually, higher order terms are dropped when small numbers are
> raised to high powers. In 4.16 this case, would the reason be that pi
> is small? It is after all the risk premium for x~. Since x~ is very
> small, the expectation and the mean are small. x~ is the difference
> between expectation and mean, and so it must be small?

You may be lucky enough to get an answer here, but have you tried the
<alt.sci.math.probability> or <sci.stat.math> news group?

Ken Pledger.

Point your RSS reader here for a feed of the latest messages in this topic.

[Privacy Policy] [Terms of Use]

© The Math Forum at NCTM 1994-2018. All Rights Reserved.