# Probability Models for Economic Decisions, Second Edition

### A book by Roger B. Myerson and Eduardo ZambranoMIT Press (2019).

Available here are the spreadsheets that appear as figures in each chapter of the book, as well as sample text from two chapters.
After you have installed the simtools.xlam add-in, you can make these xlsx 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 (See Section 1.0 of Chapter 1 if you need more help with this).

1. Introduction to probability models and simulation in spreadsheets. [draft text] [chapter1.xlsx] (Independence, conditional probabilities, basic techniques of simulation in spreadsheets.)
2. Discrete random variables. [draft text] [chapter2.xlsx] (Expected value and standard deviation from probabilities, simulation from inverse cumulative, law of large numbers, 95% confidence intervals for expected values from sample data, the expected value criterion for optimal decisions, value at risk, expected shortfall, cumulative risk profiles.)
3. Utility theory with constant risk tolerance. [chapter3.xlsx] (Utility functions, certainty equivalent, constant risk tolerance, limitations of expected utility theory.)
4. Continuous random variables. [chapter4.xlsx] (Normal distribution, central limit theorem, Lognormal distribution for growth rates, the EXP and LN functions, fitting Generalized-lognormals for subjectively assessed quartiles, the time diversification fallacy.)
5. Correlation and Multivariate Normal random variables. [chapter5.xlsx] (Covariance and correlation, using CORAND to simulate Multivariate Normals, linear combinations of random variables, portfolio analysis, political forecasting.)
6. Conditional expectation. [chapter6.xlsx] (Expected posterior law, introduction to regression, prediction intervals.)
7. Optimization of decision variables. [chapter7.xlsx] (Analysis of decision variables in simulation models, strategic value of information, use and limitations of Solver, newsvendor problems, revenue management, bidding problems, winner's curse.)
8. Risk sharing and finance. [chapter8.xlsx] (Optimal risk sharing among investors with constant risk tolerances, moral-hazard incentive constraints, asset pricing with constant risk-tolerant investors, credit rationing.)
9. Dynamic models of growth. [chapter9.xlsx] (Net present value, forecasting models, Brownian motion, introduction to real options, log-optimal investment strategies, some mathematics of gambling, risk aversion on growth rates.)
10. Dynamic models of arrivals. [chapter10.xlsx] (Exponential arrival and queuing models, the transmission of information and disease, project length models.)
11. Model risk. [chapter11.xlsx] (Implementation errors, interpretation errors, data errors, model specification errors, mitigating model risk, the precautionary principle.)

Listing at Amazon.com.

Simtools.xlam is available with documentation at http://home.uchicago.edu/~rmyerson/addins.htm.