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Expected utility theory helps to explain how individuals make decisions under uncertainty by maximizing expected utility rather than expected monetary value. This approach acknowledges the diminishing marginal utility of wealth, which influences many economic decisions involving risk and uncertainty.

Adverse selection is a market mechanism whereby bad outcomes occur when buyers and sellers have access to different information, leading to negative selection in the market. This concept typically occurs in markets for goods like insurance where those most likely to need insurance are also most likely to purchase it.

Moral hazard occurs when an individual takes more risks because they do not bear the full consequences of their actions, often due to asymmetrical information or insurance. This concept is particularly influential in insurance markets and employment contracts.

Risk aversion is a preference for a sure outcome over a gamble with a higher or equal expected value. Economists believe risk-averse individuals prefer to avoid risk, leading them to make safer investments and often purchase insurance to protect themselves against potential losses.

The risk premium is the return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is a form of compensation for investors who tolerate the extra risk compared to that of a risk-free asset.

In economics, uncertainty refers to situations where the probabilities of outcomes are unknown. Uncertainty can lead to market inefficiencies as agents may be unable to make informed decisions, leading to potentially suboptimal allocation of resources.

Risk-neutral individuals value a gamble and its expected monetary outcome equally, meaning they do not have a preference between sure things and gambles of equal expected value. This attitude can affect market dynamics, as risk-neutral players can counterbalance the more prevalent risk-averse behavior.

Systematic risk refers to the risk inherent to the entire market or market segment that cannot be mitigated through diversification. Influenced by factors like economic recessions, political turmoil, changes in interest rates, and natural disasters, it affects the overall market performance.

Black swan events are unexpected and catastrophic events that have a massive impact on economics and finance, such as a financial crisis or a natural disaster. These events challenge traditional risk management strategies because they are difficult to predict and have a severe impact when they do occur.

Prospect theory is a behavioral economic theory that describes how people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known. The theory notes that people's behaviors deviate from those predicted by the expected utility theory: they may be risk-averse in gains and risk-seeking in losses.

Unsystematic risk, also known as specific risk or idiosyncratic risk, is the risk associated with individual assets, such as a company’s stock. It can be largely mitigated through diversification as it is not correlated with market risk.

Expected value is a calculated sum that represents the average of a set of outcomes, weighted by their probabilities of occurrence. This concept is fundamental in economics for analyzing decisions under risk and assessing the fair value of gambles.

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. It aims to minimize the impact of any single asset's performance on the overall portfolio performance, reducing unsystematic risk.

Option pricing theory involves mathematical models, like the Black-Scholes model, for determining the fair value of options, which are financial derivatives based on the price of other assets. The model incorporates factors such as volatility and time to expiration, which affect the perceived risk and hence the premium of the option.

Loss aversion is a key concept in prospect theory and behavioral economics which asserts that individuals prefer avoiding losses to acquiring equivalent gains; the pain of losing is psychologically twice as powerful as the pleasure of gaining.

Risk compensation is a theory which suggests that individuals adjust their behavior according to the perceived level of risk, often becoming less cautious in situations where they feel more protected or safe. This can influence economic behavior in activities such as driving, investing, and other risk-related activities.

Value at Risk (VaR) is a statistical technique used to measure and quantify the level of financial risk within a firm, a portfolio, or an investment over a specific time frame. VaR indicates the maximum loss over a specified period of time, given normal market conditions at a certain confidence level.

Risk management involves the identification, assessment, and prioritization of risks followed by coordinated application of resources to minimize, control, and monitor the probability and/or impact of unfortunate events or to maximize the realization of opportunities.

Behavioral economics studies how psychological, cognitive, emotional, cultural, and social factors influence economic decisions of individuals or institutions and the consequences for market prices, returns, and the allocation of resources.