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Tag Archive: Profit (economics)


In one classic experiment conducted by Daniel Kahneman and Amos Tversky, pioneers in the field of blogprospect theory, subjects were given a hypothetical choice between a sure $3,000 gain versus an 80% chance of a $4,000 gain and a 20% chance of not getting anything.

The vast majority of people preferred the sure $3,000 gain, even though the other alternative had a higher expected gain (0.80 × $4,000 = $3,200).

Then they flipped the question around and gave subjects a choice between a certain loss of $3,000 versus an 80% chance of losing $4,000 and a 20% chance of not losing anything. In this case, the vast majority chose to gamble and take the 80% chance of a $4,000 loss, even though the expected loss would be $3,200. Continue reading

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EVA or Economic profitis a measure of company’s financial performance based on the difference between return on

invested capital and appropriate charge for the cost of capital invested in an enterprise or firm.

EVA = net operating profit after taxes [capital * cost of capital (WACC))]

EVA is an estimate of true “economic” profit, or the amount by which earnings Continue reading

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