I have a somewhat related question - and openly admit to being a neophyte
my question is this
traditional variance weights positive and negative outcomes equally
how can one compute a variance that reflects a persons bias (risk aversion) toward a directional outcome
as in business assume an ill favored outcome is worth 0.5x and a preferred outcome is worth 1.5x
would a person compute 2 variances by creating 2 sub populations illfavored/preferred and apply the
formula var (bx) = b^2times sigma^2 to each population and sum the final products?
I have a somewhat related question - and openly admit to being a neophyte
my question is this traditional variance weights positive and negative outcomes equally
how can one compute a variance that reflects a persons bias (risk aversion) toward a directional outcome as in business assume an ill favored outcome is worth 0.5x and a preferred outcome is worth 1.5x
would a person compute 2 variances by creating 2 sub populations illfavored/preferred and apply the formula var (bx) = b^2times sigma^2 to each population and sum the final products?
am I wrong in thi... (read more)