MS&E 107 Lecture Notes - Lecture 15: Gartner, Scatter Plot, Net Present Value
15 Nov 2016
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Document Summary
Probability management - communicating uncertainties as arrays of monte carlo trials (or sips) that are standardized. Network effects: economics - only one phone - nothing, but 5 million telephones are valuable. Concept of real integers 1, 2, 9. Zero - the biography of a dangerous idea. Oil is major economic variable around the world. One of the nigeria projects by itself - high average of portfolio profit but 15% of losing everything. Tradeoff curve: traveling along, depends on risk tolerance. Nigeria produces a lot of gas - price will increase in europe. Add norway to nigeria - back on the frontier. Portfolio of exploration projects - probability of nigeria blowing up. Higher probability of nigeria blowing up - scatter plot being distorted. The galaxy are all the potential portfolios possible given the probability of nigeria blowing up. Putting norway into nigeria - hedging - nigeria will blow up, norway will be safe. Unhedged - both nigeria investments and no norway.
