Decisions under Uncertainty (MA)


In finance economic principles are applied to decision making in an uncertain environment which is modelled by means of random variables and probability distributions. We talk about situations under risk. Preferences of decision makers are described by so-called utility functions which leads to the concept of expected utility a rational investor should follow. Expected utility theory is the basis for much of modern finance theory.

Traditional finance is a normative theory. However, it is observed that people’s behavior often deviates from this rational decision model. Therefore more descriptive approaches have emerged. The application of such approaches to finance leads to the field of behavioral finance. In the final part of the lecture we will deal with behavioral decision theory and carry out some online experiments.

Organizational Issues

The lecture is held in every winter term, 2 hrs per week (4 ECTS).
It is held in English and all examinations are in English.

Registration for the lecture is not required but recommended in order to get access to the e-learning platform Moodle where material for the course is provided.

Please note that if you missed the registration for the lecture we do not register students in Moodle at a later point in time!

Registration is possible during the semester when the lecture is held and the subsequent semester.

The lecture "Decisions under Uncertainty" is a compulsory course in the following programs:

  • Master's program in Banking and Finance
    • Core Program: Introductory Module
  • Master's program in Applied Economics
    • Specialisation in Applied Economics: Elective Module "Banking and Finance"

It is an elective course for the following programs:

  • Master's program in Economics (expiring)
    • General Electives: Business Administration and Finance
  • Master's program in Statistics
    • Free Electives

Bachelor students are not allowed ot take the exam except you hold a prior approval by the Directorate of Studies.


Basic prior knowledge in statistics and probability theory as well as in calculus and linear algebra are needed.
Prior knowledge in microeconomics is an advantage.

See also mathematical and statistical ability at the information site on admission requirements for the master's program in Banking and Finance.

Recommended literature


  • Introduction (what is decision theory, decisions under risk)
  • Expected utility theory
  • Risk aversion
  • Stochastic Dominance and Risk Comparisions
  • Some Remarks on the Mean-Variance Approach
  • Empirical Facts
  • Prospect Theory
  • Sequential Decisions and the Role of Information


The lecture is graded by one single exam.

Exams are offered at

  • the end of the winter term,
  • the beginning of the summer term,
  • during the summer term,
  • the end of the summer break
>> Examination dates

For the exam registration via u:space is required.
(Registration for the lecture does not imply registration for the exam!)
Please note that in case of non-attendance without serious reason you will be suspended for the next examination date!
See also the Satzung of the University of Vienna, §6 (5) of the part "Studienrecht", Mitteilungsblatt vom 03.12.2014 (in German).

Please care about meeting the deadlines for registration and deregistration.
There is no way for late registration!
Note that you receive a confirmation of your registration by email. (If this is not the case please check your registration.)
The registration period starts 4 weeks before the exam and ends 1 week before.

Examination topics are the topics listed above, in particular, topics which were discussed in the previous winter term.
See the syllabus of the lecture of the previous winter term (information for the lecture at my webpage: "Lehrveranstaltungen" of the previous semester or "LV früherer Semester").

Permitted materials for the exam:
No documents (neither notes nor formularies) are allowed. A simple, non-programmable calculator, which does not plot graphs is allowed.

Please note that mobile phones, smart watches etc. must be out of reach during the exam.

Consequences of cheating:
Cheating is considered as a violation of academic integrity. Cheating counts as an attempt for the course and is marked on the univerisity certificate (Sammelzeugnis).

(see also Vorgehensweise bei Erschleichung von Leistungen - document by the Studienpräses, only available in German)


  • A. Gaunersdorfer, Decisions under Uncertainty, Lecture Notes, University of Vienna (latest edition)

  • T. Biswas, Decision-Making Under Uncertainty, Macmillan Press, Basingstoke, 1997, part I
  • T. E. Copeland, J. F. Weston, K. Shastri, Financial Theory and Corporate Policy, Pearson Education, 2005, ch. 3
  • A. Mas-Colell, M. D. Whinston, J. R. Green, Microeconomic Theory, Oxford University Press, New York, 1995, ch. 6
  • T. Hens and M. O. Rieger, Financial Economics -- A Concise Introduction to Classical and Behavioral Finance, Springer, 2010, ch. 2
  • P. P. Wakker, Prospect Theory: For Risk and Ambiguity, Cambridge University Press, New York, 2010

    Supplementary reading:

  • L. Eeckhoudt, C. Gollier, H. Schlesinger, Economic and Financial Decisions under Risk, Princeton University Press, Priceton, ch. 1, 2
  • H. Levy, Stochastic Dominance - Investment Decision Making under Uncertainty (3rd ed.), Springer, 2016.
  • C. Huang, R. H. Litzenberger, Foundations for Financial Economics, Elsevier Science Publishing Co., New York, 1988, ch. 1, 2, 3.1-3.6
  • J.-P. Danthine, J. Donaldson, Intermediate Financial Theory (2nd ed), Elsevier Academic Press, 2005, ch. 3–6
  • D. Ruppert, Statistics and Finance – An Introduction, Springer, New York, 2004
  • G. Sorger, Entscheidungstheorie bei Unsicherheit, Lucius & Lucius, Stuttgart, 2000

Additional literature will be on the lecture slides.