How Complex Systems Fail

A student asked

I want to ask why risk-averse has a decreasing marginal utility? Thank you.

Response:

If someone has a decreasing marginal utility of income and they maximise expected utility then they will be risk averse.

This is something that takes a long time to fully explain, and I try to give an explanation in the web-book and in lecture (and again in tomorrow's lecture).

One simple intuition.: Risk averse essentially means "I will never take any fair gamble".

E.g., "I'll never accept a bet with an equal chance of losing or gaining some amount X." How does diminishing MU of income explain this? If I have diminishing MU of income then my utility is increasing in income at a decreasing rate.

The first units of income (e.g., going from 0 income to 15k income) add more utility than the later units of income (e.g., going from 15k income to 30k income) , which adds more than even later increments (e.g., going from 30k to 45k), etc.

So "an equal chance of losing or gaining X" would not be attractive to such a person. Why not? Because relative to any point "losing X" reduces my utility more than "gaining X" increases it.

E.g., in the above example, if you started at 15K income you wouldn't want to have an equal chance of losing or gaining 15K in income. Having 0 income would be terrible, while having 30k income would be better, but not 'that much' better. As we said, the utility difference between 0 and 15K is much greater than the utility difference between 15k and 30k... because of the assumption of diminishing marginal utility. So it's better to have 15k for sure than to have a 50/50 chance of 0k or 30k.

The 'utility loss from losing 15k' is greater than the 'utility gain from gaining 15k'. As expected utility weights the utility of each outcome by its probability and sums these, in considering a 1/2 chance of losing 15k and a 1/2 chance of gaining 15k these probabilities weight equally, so I only need to consider "does the utility cost of losing 15k exceed the utility gain from gaining 15k" in this example. Because of diminishing MU, we know it does not. Nor does it for any "equal chance of losing or gaining some amount X". Thus this person is risk-averse.

I hope this helps. Looking at the 'utility of income' diagrams may also be helpful.

Three case study themes on why contracts failed or worked

Fellow student, since you are reading this, you installed Hypothes.is as the instructor's recommended. However, the extension by default has permissions to read all data on all websites you visit. Technically that means email, banking sites, etc. I for one don't want to give random software that authority. The developer did provide a easy way to limit that, and I'll assume he programmed it to work as promised. If you right click on the "h." extension icon, you can change "This can read and write all site data" to only Coursera - which means you can use the extension for the class, but it shouldn't be reading your emails or bank passwords.

For the course writers and INSEAD - while Hypothesis looks solid and its nice that its non-profit, encouraging all students to install unrestricted extensions which can read all pages and data is a big responsibility, it could easily go wrong. Have you considered how this could be used as malware with the extensive permissions the extension is granted by default?

In most cases, many parents in this situation can understand all too well with the safety of their child. According to the school, the case is resolved with a slap on the wrist for the offender. Amy and her son still feels unsafe. Jacob would have to go to school everyday with fear waiting for the next bad thing to happen. Aside from that, parents must also fear the risk of suicide and the mental well being of their child? The result of a case being "resolved."

Clinical trials will most certainly first include those patients with the highest risk of relapse. However, long term, everything will depend on the risk/ benefit trade off: if an effective, simple, well-tolerated and cost-effective treatment was available (let's imagine a single short low-dose PD1 for any early Melanoma patient) that prevented progression for most patients would be very different from a highly toxic, expensive treatment that doesn't work for everyone (think Ipi 10mg/kg adjuvant)- so everything is in the trade-off

keywords

Evokes distributed cognition (Hutchins) as well as the uncertain nature of safety- and time-critical work and how to classify risk/need.

A visual exploration of the link between statin use and the risk of Diabetes in a subpopulation of patients with subclinical hypothyroidism.

This is an interactive graph created with Biovista Vizit; nodes and links can be further explored to view supporting bibliography and molecular mechanism of action.

This shows between a 65% to 272% increased risk of miscarriage from use of common antibiotics.

The risk is being characterized as "small' - http://www.cnn.com/2017/05/01/health/antibiotics-miscarriage-study/

I'm not sure any pregnant woman would characterize more than doubling of the risk as small, and we can assume that if this data was shown for a natural substance, it would be characterized differently.

The study that is hyperlinked in this article takes you to a blog post on the Harvard Medical School Prostate Knowlegde blog. They didn't do the study, but they wrote a post about two studies that were conducted on the topic and gave references, which made it nice to follow. After reading the two studies, i found that this title tends to be misleading in its statement. Both studies conducted found that men who ejaculate more than either 7 times per week or more than 21 times a month have a decreased risk of prostate cancer. To me, this is not regular orgasms, that amount seems to be on the higher end for most people and hard to continue through out your life. In conclusion, yes, more ejaculations can reduce your risk of prostate cancer, but the amount needed is high and must be started at a young age to fully reap the benefits.

APA References:

Giles, G.G., Severi, G., English, D.R., McCredie, M.R.E., Borland, R., Boyle, P., & Hopper, J.L. (2003). Sexual factors and prostate cancer. BJU International, 92(3), 211-216.

Leitzmann, M.F., Platz, E.A., Stampfer, M.J., Willett, W.C., Giovannucci, E. (2004). Ejaculation frequency and subsequent risk of prostate cancer. JAMA: Journal of the American Medical Association, 291(13), 1578-1586.

Links: http://jamanetwork.com/journals/jama/fullarticle/198487?=quot;,gt;

http://onlinelibrary.wiley.com/doi/10.1046/j.1464-410X.2003.04319.x/full

Another facet/form of risk.

I think this is key. The only alternative to argument is a risk--to risk one's self by making their narrative plain and facing the possibility that the other will reject one's narrative (and thereby reject one's personhood.

The difference between the previous steps to avoid argument and this one is that this one advocates risk and seems to make no promise of resolution.

Taking the risk to be open.

Feeling of being uncomfortable when first confronted with explaining a potential project - that reminds me of conversations with Maritta and Leena.

Need to create a risk management plan associated with the use of predictive analytics. Talking as an organization about the risks is important - that way we can help keep each other responsible for using analytics in a responsible way.

Algal bloom is noted by the EPA as a major environmental problem. Essentially, algal blooms are overgrowths of algae. Of course, a natural phenomenon such as this does not know political boundaries, and thus information given on Algal Bloom by the EPA is as valid in Canada as it is in the U.S. Algal blooms are also known as red tides, cyanobacteria, or blue-green algae. Algal blooms are commonly toxic, and the EPA advises people and other animals stay away from water sources that look like they may have algal bloom occurring. This water is commonly green, bad smelling, or scummy. Algal bloom can occur in both marine environments and fresh water environments. In fact, in both these environments, even non-toxic algal blooms can affect the economy and environment. This is because algal blooms can create “dead zones” in the environment they are present in. They also make treatment of drinking water much harder, raising costs of that process. They also hurt industries that rely on clean water to operate. Algal blooms essentially need three things to occur: slow moving water, sunlight, and nutrients. These nutrients include nitrogen and phosphorus. In terms of specific effects of the harmful algal bloom, the human health consequences can be seen as symptoms such as: respiratory problems, stomach illness, liver illness, rashes, and neurological effects. Children drinking nitrates (a common element in algal bloom water) is also very dangerous. Dioxins, which are used to treat water contaminated with the elements of algal bloom, can also be dangerous.

EPA. “Harmful Algal Blooms”. Last modified January 23, 2017. https://www.epa.gov/nutrientpollution/harmful-algal-blooms

To perform his ethos puts him at risk.

These "endangering possibilities" are the focus of much of the Enlightenment thinkers we will shortly engage.

source: https://s3.amazonaws.com/prod_foundationapp/364221/lessons/35/1384378776-john-carlton-1.pdf

from: https://campus.thefoundation.com/courses/1/lessons/35

it's a shame that teachers may be hesitant to elevate the discourse amongst students out of fear of repercussions due to idealogy

The conditions and process described here mirrors the process many organizations go through in an attempt to cut costs by trying to cut through what is perceived as marketing-hype. The cost differences are compelling enough to continually tempt people down a path to considerably reduce costs while believing that they've done enough due-diligence to avoid raising the risk to an unacceptable level.