# Probability Models for Economic Decisions

### A book by Roger B. MyersonCengage Learning (2005).

This book uses Simtools.xla, a free add-in for simulation and decision analysis in Microsoft Excel.

Available here are the spreadsheets that appear as figures in each chapter of the book, as well as sample text from two chapters.
In a newer version of Excel, after you have installed the simtools.xlam add-in, you can make these xls spreadsheets work by using Edit-Links (in the Data tab, under connections) to change the source of all "simtools.xla" references to your local installed version of simtools.xlam.

1. Introduction to probability models and simulation in spreadsheets. [draft text] [chapter1.xls] (Independence, conditional probabilities, basic techniques of simulation in spreadsheets.)
2. Discrete random variables. [draft text] [chapter2.xls] (Expected value and standard deviation from probabilities, simulation from inverse cumulative, law of large numbers, 95% confidence interval for expected value from sample data, the expected value criterion for optimal decisions, cumulative risk profiles)
3. Utility theory with constant risk tolerance. [chapter3.xls] (Utility functions, certainty equivalent, constant risk tolerance.)
4. Continuous random variables. [chapter4.xls] (Normal distribution, central limit theorem, Lognormal distribution for growth rates, the EXP and LN functions, fitting Generalized-lognormals for subjectively assessed quartiles.)
5. Correlation and Multivariate Normal random variables. [chapter5.xls] (Covariance and correlation, using CORAND to simulate Multivariate Normals, linear combinations of random variables, portfolio analysis.)
6. Conditional expectation. [chapter6.xls] (Expected posterior law, introduction to regression.)
7. Optimization of decision variables. [chapter7.xls] (Analysis of decision variables in simulation models, strategic value of information, use and limitations of Solver, newsboy problem, bidding problem, winner's curse.)
8. Risk sharing and finance. [chapter8.xls] (Optimal risk sharing among investors with constant risk tolerances, moral-hazard incentive constraints, asset pricing with constant risk-tolerant investors.)
9. Dynamic models of growth and arrivals. [chapter9.xls] (Net present value, forecasting models, Brownian motion, logoptimal investment strategies, exponential arrival and queuing models, project length models.)

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Simtools.xla  is available with documentation at addins.htm.