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By definition, a convex combination of an indexed subset {v 0, v 1, . . . , v D} of a vector space is any weighted average λ 0 v 0 + λ 1 v 1 + . . . + λ D v D, for some indexed set of non‑negative real numbers {λ d} satisfying the equation λ 0 + λ 1 + . . . + λ D = 1. The definition of a convex set implies that the intersection of two ...
The sum of two concave functions is itself concave and so is the pointwise minimum of two concave functions, i.e. the set of concave functions on a given domain form a semifield. Near a strict local maximum in the interior of the domain of a function, the function must be concave; as a partial converse, if the derivative of a strictly concave ...
In convex analysis, a non-negative function f : R n → R + is logarithmically concave (or log-concave for short) if its domain is a convex set, and if it satisfies the inequality (+ ()) () for all x,y ∈ dom f and 0 < θ < 1.
Right graph: With fixed probabilities of two alternative states 1 and 2, risk averse indifference curves over pairs of state-contingent outcomes are convex. In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter ...
A set of convex-shaped indifference curves displays convex preferences: Given a convex indifference curve containing the set of all bundles (of two or more goods) that are all viewed as equally desired, the set of all goods bundles that are viewed as being at least as desired as those on the indifference curve is a convex set.
A conical combination is a linear combination with nonnegative coefficients. When a point is to be used as the reference origin for defining displacement vectors, then is a convex combination of points ,, …, if and only if the zero displacement is a non-trivial conical combination of their respective displacement vectors relative to .
In economics, non-convexity refers to violations of the convexity assumptions of elementary economics.Basic economics textbooks concentrate on consumers with convex preferences (that do not prefer extremes to in-between values) and convex budget sets and on producers with convex production sets; for convex models, the predicted economic behavior is well understood.
Intuitively, the utility function must not simply be concave, but it must be concave relative to the probability weighting function to avoid the St. Petersburg paradox. One can argue that the formulas for the prospect theory are obtained in the region of less than $400. [ 12 ]