Having learned to convert uncertainty to risk in Lecture 2, now go deeper by investigating how probabilities can gauge rewards and risks. Test risk-assessing tools used in finance, including expected value, variance, standard deviation, coefficient of variation, Sharpe ratio, covariance, and beta..

Investigate the multitude of ways you can insure against misfortune, from extended warranties to travel insurance to identity-theft protection—not to mention health, car, home, and life insurance. Learn how insurance products work, and get tips on what you should cover and at what value..

Improve your ability to handle uncertainty by studying two ways that people reach decisions. System 1 excels at making snap judgments, while System 2 is analytical, methodical, and more time-consuming. Weigh the strengths and weaknesses of each, focusing on the problem of estimating probabilities..

Delve into the uncertain realm of compensation contracts, which ideally motivate employees to do a good job, but too often have unintended consequences. Survey the pluses and minuses of efficiency wages, piecework, milestone payments, commissions, promotions, stock options, and other incentives..

When faced with an uncertain situation, try turning it into a “risky” situation. Risk is probability. Knowledge is power. This may sound counterintuitive, but it’s a surprisingly effective approach, pioneered by University of Chicago economist Frank Knight. See where it applies and does not apply in economic settings..

Professor Fullenkamp begins with “black swan” events—occurrences that are considered as improbable as black swans. A notable recent example is the 2008 financial crisis. This leads to an examination of the nature of uncertainty and the best strategy for dealing with it..

Learn to cope with uncertainty and risk with advice from a master economist. Economic uncertainty is like the weather: you can’t stop storms, but understanding them prepares you. Uncertainty is beyond our control, but when you take the mystery and dread out of uncertainty, you can respond much more effectively. The practical and empowering lectures of The Economics of Uncertainty give you tools to deal with risk..

Examine two different types of probability. Frequency-based probabilities rely on many examples of a phenomenon, while subjective probabilities call on personal experience and judgment, often drawing on relatively few cases. Learn to think critically about these two approaches, and know when to use them..

Adverse selection occurs when the lack of information by one party leads to a distorted result. See how this situation surfaces in many different contexts, from used car sales to investment deals to Internet purchases. Learn to recognize the adverse selection trap, and know how to correct it..

Focus on a special case of moral hazard: the principal-agent problem, in which an agent is appointed to handle a matter beyond the expertise of the person doing the hiring (the principal). The agent may easily take unfair advantage of this situation, which covers everything from home repair to government contracting..