'What Insights Can Economics Provide Concerning The Way In Which Economic Agents Choose Under Conditions Of Risk And Uncertainty?'
             All economies are subject to the 'Basic Economic Problem', that which is defined as 'the necessity to allocate scarce resources between infinite competing uses'. Clearly with such constraints imposed, economic actors must make choices as to how to allocate their resources, and the outcome of such choices is often uncertain.
             All economic transactions involve some element of risk, be it a high level of risk (significant), or a low level (insignificant). Risk arises due to the fact that consumers are often unaware of the quality of a proposed transaction – they are uncertain as to the potential benefit to be gained from a products purchase. What they perceive the advantages to be of good A over good B may in reality be wrong. Economists have theorised about how choices under uncertainty are made for many years, and solid axiomatic foundations of choice theory have been in place since the 1970's.
             To outline some initial concepts, let's suppose we are taking part in some gamble with an uncertain outcome. The gamble offers prizes x1, x2, ..., xn with corresponding probabilities of winning p1, p2, ..., pn. Our attraction to participating is derived from the expected value of the result – that is the most likely outcome of the experiment when it is repeated many times. It is given by:
             Giving arbitrary values for x, we can make the following three statements; If E[X] < 0 the game is biased against the player; If E[X] > 0 the game is biased for the player; Otherwise if E[X] = 0 the game is mathematically fair.
             An interesting hypothesis of fair games is that people are generally unwilling to play them, and will be even less inclined to play as the degree of risk involved increases (though still remaining fair).
             David Bernoulli proposed an interesting...