Teoria delle decisioni - eng

DECISION THEORY

Prof. Ernesto Salinelli

Course Code: E0371
Subject code: SECS-S/06
6 ECTS – 48 hours
Location: Novara


Language: Italian
Brief description:
Introduction to decision-making problems: Linear programming techniques and applications; decisions under risk: expected utility, certainty equivalent, risk premium, attitude towards risk, mean-variance criterion.

Course Texts:
•    Bellenzier L., Grassi R., Stefani S., Torriero A., Metodi quantitativi per il Management, Esculapio, 2012.
•    Lecture notes.
•    Castellani G., De Felice M., Moriconi F., Manuale di Finanza II (teoria del portafoglio e mercato azionario), Il Mulino, 2005. (recommended reading)

Educational aims
The course aims at providing some useful introductory theoretical tools to develop the ability to analyze and formalize some typical problems of individual choice under certainty and risk. The exposition of many examples of economic-business and the use of spreadsheet aims to create an operational sensitivity with respect to the subject.

Prerequisites
Differential calculus for real functions of one and several real variables. It is recommended to take the exams of Mathematics 1, 2 and Statistics.

Teaching methods
Lectures, tutorials and computer laboratory.

Other information
Any useful information on the course and supplementary didactic resources can be found on the web page of the course at the URL: https://eco.dir.unipmn.it/.

Examination
A compulsory written exam with exercises and theoretic questions, and an optional oral exam. It is possible to arrange with the teacher alternative evaluation methods.

Content of the Course:
Introduction to decision-making problems. Preference and indifference relations and their properties.
Resource allocation decisions under certainty. Linear Programming: real-world problems modelling, variables, constraints, objective function, the feasible region, solutions. Solution methods: graphical analysis (two variables), algebraic method, iterative methods; implementation with Excel. Sensitivity analysis. Duality theory and  Integer Programming (hint).
Introduction to the theory of financial decisions under risk. Elements of Probability. Ordering operator and its properties. Certainty equivalent: definition and examples. Maximization of the expected value (MVA) criterion, fair price, applications to the theory of insurance. Attitude towards risk. The risk premium. Compound lotteries. Axioms of rationality. Representation theorem of Von Neumann - Morgenstern. Principle of maximization of expected utility. Estimation of the utility function. Attitudes towards risk and the concavity of the utility function. Measure of risk aversion. Quadratic approximation of an utility function.
Mean-variance criterion. Random complex operations. FNVA and variance of the NPV of a financial operation. Applications to the insurance and portfolio selection.