Tutor profile: Konstantin H.
How strong are weak ties?
One of the most cited sociological papers is Granovetter's "Strength of Weak Ties" (1973). He discusses how in a social network individuals have strong ties (good friends) and weak ties (distant acquaintances). The more weak ties an individual has the more access to rare information he has. This way of information acquisition can benefit an individuals intellect, skills, and job prospects. Thus, having weak ties is a strong trait!
What is Expected Utility Theory (EUT)?
In the 18th Century Bernoulli proposed a relationship between psychological well-being (utility) and monetary value. The standard EUT suggests that utility and wealth are a logarithmic function meaning that utility increases sharply when increasing wealth from 0USD to 100 USD, but less so from 100 USD to 200 USD, and so on. This concept is called diminishing marginal utility. Behavioral Finance has questioned this concept and introduced prospect theory as a solution
What is a Net Present Value (NPV)
The NPV of any asset is the future expected payment (E(Y)) given the duration of expected pay (t) and expected interest rate (r). This concept evolves around opportunity cost: the alternative opportunity to invest into a risk free savings account providing r over t. If E(Y) does not exceed the payout of a risk free savings account the NPV is lower than the initial investment- thus not economic.
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