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    Uncertainty

    Uncertainty is related to the accuracy of the economic model that tries to determine levels of growth and is tied to most fields in economics. The lower the probability, the higher the uncertainty and therefore, the higher the risk from an economic standpoint. For example, a manufacturer does not want to overcapitalize or overproduce for the size of the market. The converse is also true. If the model is too optimistic or pessimistic, it leads to uncertainty.

    Uncertainty is most often referred to in terms of money as a representative for composite consumption¹. The topic of uncertainty encompasses the concepts of utility, risk aversion, and the analysis of human behaviour and decision making when under uncertainty. Consumption depends on the outcome of an event, referred to as the state of nature. The contingent consumption plan is a statement of the consumption that occurs in each state of nature¹. The most used models in the study of behaviour under uncertainty are models of imperfect and asymmetric information.

    The outcome of an uncertain situation is referred to as the state of the world. Contingent commodities are commodities whose level depends on which state of the world occurs¹.

     

    References:

    1. Holden, Tom. February 8, 2013. Uncertainty. Retrieved from www.micro2.tholden.org/2013/02/lecture-1-uncertainty-1.html

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