Journal Files A.A.S
C-D Gap application JF Schmid
For any one problem of a class of problems such as whether to buy insurance for low probability but disastrous events. The consumer can make the expected utility calculation. But for the whole class, the person may have a C-D gap and choose the SOP of ignoring the lot.
But the C-D gap is different for a specialized firm. A bank making housing loans in the flood plain does not have such a gap and can make the necessary calculations with little chance of error. So it may require insurance of all borrowers.
EXAMPLE OF RADICAL SUBJECTIVITY
A new system of integrated video, voice, etc. is being developed by several software companies. They are trying to form alliances with those who make creative content such as the Steven Speilbergs of the world. There is a problem of fundamental uncertainty in developing such a product. A number of input suppliers must jointly imagine the future and create it. It is not a matter of clever forecasting.
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If you have any questions or comments, please email schmid@pilot.msu.edu
