Advantage and one disadvantage of ex ante analysis and ex post analysis

Earnings estimates, for example, involve ex-ante analysis. This also involves modeling uses for cash, such as capital investments, dividends and stock buybacks.

Advantage and one disadvantage of ex ante analysis and ex post analysis

Coin Flips and Car Crashes: Heads he pays you two dollars, tails you pay him one. He flips the coin. It comes up tails, and you pay him a dollar.

Whether you should have made the bet depends on whether you judge it ex ante or ex post. Ex ante, judged by the information available to you at the time, it was a good bet, since on average you could expect to come out fifty cents ahead.

Ex post, judged by the information available to you after the coin was flipped and you had lost, it was a bad bet, since it cost you a dollar. When dealing with decisions under uncertainty, it is important to distinguish between these two ways of evaluating them.

Ex ante, almost all gambles in Las Vegas are losing ones; the casino, like an insurance company, sets its rates so that the money that comes in when it wins covers not only the money it pays out when it loses but also its operating expenses. Nonetheless, some gamblers win their bets ex post.

The same distinction is useful in analyzing how the legal system can be used to prevent undesirable outcomes such as automobile accidents. One approach punishes people for doing things that increase the probability of accidents ex ante: The other punishes the undesirable outcome observed ex post, via tort liability for the damage done to the car you collide with or criminal penalties for drunk drivers who run over people.

I shoot at you, and the bullet goes into a tree instead. Judged ex post, based on the damage done, there should be no punishment: Both you and the tree are fine. The explanation is that punishment for attempted murder is, like a speeding ticket, an ex ante punishment, a way of preventing undesirable outcomes by punishing behavior that increases their probability.

Driving fast makes it more likely that you will run into someone. Shooting at people makes it more likely that you will hit them.

The odd thing about punishment for attempted murder is that the ex ante behavior is discovered only after we know that it did not actually produce the undesirable outcome—this time.

A different way of putting it is that our legal system imposes an ex ante punishment for trying to kill people plus an additional ex post punishment for succeeding. Choosing the Right Rule s These examples of ex post and ex ante punishments suggest an interesting question for the economic analysis of law: Why does the legal system sometimes uses one approach, sometimes the other, and sometimes both?

What are the advantages and disadvantages of each? The ex post approach has one important advantage over the ex ante: By making it in the driver's interest to avoid accidents, it exploits his private knowledge of how to do so.

Advantage and one disadvantage of ex ante analysis and ex post analysis

Consider, for a simple real-world example, my own behavior. The most dangerous thing I do when driving is not speeding, nor driving drunk, nor driving an unsafe car. The most dangerous thing I do is to pay attention to my conversations with other people, real conversations with real people sitting next to me or arguments inside my head with radio talk show hosts or imaginary opponents, when I ought to be paying attention to my driving.

That is the most dangerous thing I do as a driver, but I have never gotten a ticket for it. Ex ante punishments can be imposed only on behavior that a traffic cop can observe; so far, at least, that does not include what is going on inside my head. Ex post punishments can be imposed for outcomes that can be observed due to behavior that cannot—when what is going on inside my head results in my running a red light and colliding with another automobile.

Ex ante punishment makes it in my interest to take those precautions that the legal system, here represented by the legislature and the traffic cop, knows I should take and can tell if I am taking.

Ex post punishment makes it in my interest to take any precautions that I know I should take and can tell if I am taking.Ex-ante performance analysis also has the advantage that it can be run for horizons as short as one day.

For hedge funds, ex-ante performance analysis is often the preferred method of performance attribution. Looking Back at Ex-Ante Ex-Post.

Once the event that ex-ante analysis attempted to predict has passed, Fundamental analysis is one of the basic ways to evaluate stocks.

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Find out what it is and. Discuss at least one (1) advantage and one (1) disadvantage of ex ante analysis and ex post analysis. The ex post approach has one important advantage over the ex ante: By making it in the driver's interest to avoid accidents, it exploits his private knowledge of how to do so.

Consider, for a simple real-world example, my own behavior. Aug 01,  · Discuss at least one (1) advantage and one (1) disadvantage of ex ante analysis and ex post analysis.

Justify your answer with examples. One that attemps to identify a cause and effect relationship by conducting an experiment. This approach allows the investigator to observe, under controlled conditions .

Chapter 7: Coin Flips and Car Crashes: Ex Post versus Ex Ante