Trade-off talking rational economic person (acronym: T.O.T.R.E.P.) is one term, among various, used to denote, in the field of choice analysis, the rational, human agent of economic decisions.
When choices are made (collectively or by an individual) to accept having less of one thing in order to get more of something else, the results are called trade-offs.
Definition: The choice labour makes between working more hours or taking more leisure when the rate of income tax changes.
Related glossary term: ...
Debt levels are chosen to balance interest tax shields against the costs of financial distress.
Agency costs ...
A trade-off involved in the use of returnable product is that it minimizes the consumption of resources. Returnable equipment does not take up time in manufacturing and ordering, as it is continuously available for fast obtainment. Also it has close to zero disposal cost.
This trade-off between inflation and unemployment would be associated with a shift in aggregate demand,
since the aggregate demand curve is downward sloping. The aggregate supply curve is upward sloping:
a shift in aggregate supply would not indicate a trade-off between inflation and unemployment.
Also, this trade-off and economic incentives (financial inducements, for example, the prospect of a healthy profit) more generally affect the hiring and investment decisions that entrepreneurs make when they establish and grow their businesses.
The balance an investor must decide on between the desire for low risk and high returns, since low levels of uncertainty (low risk) are associated with low potential returns and high levels of uncertainty (high risk) are associated with high potential returns.
The tendency for potential risk to vary directly with potential return, so that the more risk involved, the greater the potential return, and vice versa.
RISK-RETURN TRADE-OFF Risk and return are directly related in that the higher the risk the greater return and vice versa. Age and investment time frame should be considered when determining the levels of risk appropriate.
Trade agreement - An international agreement on conditions of trade in goods and services.
Trade-off - Giving up some of one thing to get some of another thing.
The Income/Leisure trade-off in the short run
If the preference for consumption is measured by the value of income obtained, rather than work hours, this diagram can be used to show a variety of interesting effects. This is because the slope of the budget constrait becomes the wage rate.
This intertemporal trade-off is the central building block of the life-cycle model of saving. Note that this model is firmly grounded in expected utility theory and assumes rational behavior. In recent years, there is much research on psychological aspects of savings.
Target cash balanceOptimal amount of cash for a firm to hold, considering the trade-off between the opportunity costs of holding too much cash and the trading costs of holding too little cash. Target companyOften used in risk arbitrage.
Economists milton friedman and Edmund Phelps had pointed out that there should be no long-run trade-off between unemployment and inflation; or, in economists' jargon, that the long-run phillips curve should be vertical.
Key causes for these changes there are: (i) real wages rigidities (that have generated a trade-off between the stabilization effect of inflation and the output gap); (ii) the way monetary policy is conducted '...
The generic term for models designed to price assets, usually shares or baskets of them, in terms of the trade-off between risk and return t...(Read more)
See 'balance of payments'....(Read more)
Capital Shares ...
Using 20-20 hindsight, you might say that you would accept that trade-off. Of course you would if you knew what the outcome was going to be. But during the heat of the battle it might be too much. You might tell yourself, "I don't care about the long-term track record. I'm losing too much money.
There's always a trade-off in options trading, however. The trade-off is that there's more profit to be had in a butterfly, and that extra profit means you have more to work with when you make an adjustment. Many adjustments require you to lock in a loss.
However, economists such as MILTON FRIEDMAN argued that this supposed inflation-for-jobs trade-off was in fact a trap.
INTERMEDIATE RANGE: The positively-sloped segment of the Keynesian aggregate supply curve that reflects the trade-off between aggregate output and the price level. Shifts of the aggregate demand curve in this range lead to changes in both aggregate output and the in price level.
However, trade-offs among Principles could be accepted in exceptional circumstances. Decision-makers at banks, in particular the board and senior management, should be aware of these trade-offs and the limitations or shortcomings associated with them.
Marullo, Gloria Gibbs. "Hiring Your Child: Tax Breaks and Trade-Offs." Nation's Business. June 1997.
Wiener, Leonard. "How to Keep One Step Ahead: Hot Tips for Turning an Annual Chore into Many Happy Returns." U.S. News and World Report. March 9, 1998.
tax planning ...
New research weighs the trade-offs between playing it safe and trying to grow that cushion.
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An adage that, referring to the risk/return trade-off, says that the type of security an investor chooses depends on whether he or she wants to eat well or sleep well.
Determining Risk And The Risk Pyramid
Basic Investment Objectives
Eat Your Own Dog Food ...
What is your attitude to risk and potential returns?
All investments carry a trade-off between risk and reward. The more risk you're willing to take, the greater the opportunity for significant capital growth, and unfortunately, the greater the scope for losses.
Principles underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient diversification.
Similar financial terms
A portfolio that provides the superior expected return for a given level of risk ...
Optimal amount of cash for a firm to hold, considering the trade-off between the opportunity costs of holding too much cash and the trading costs of holding too little cash.
Target company ...
Strategies for reducing downside risk involve trade-offs, so will either reduce the expected return (for example, hedging with options) or the upside risk (for example, selling a very volatile share to buy something more stable).
Theory that the firm's capital structure is determined by a trade-off of the value of tax shields against the costs of bankruptcy.
Self-financing of a supplier's operations.
The trade-off is "fun now, no return later" and many are satisfied with this. The one saving grace is that a well-constructed deck with ample seating room will often mature in value. So, hire the pool crew if you must, but don't fool yourself about a generous return on investment.
Target cash balance
Definition: [crh] Optimal amount of cash for a firm to hold, considering the trade-off between the opportuDefinition: nity costs of holding too much cash and the trading costs of holding too little cash.
Modern portfolio theory Investment strategy based on risk-return trade-offs and efficient diversification.
The PEG ratio is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (usually current-year or forward earnings), and the company's expected growth.
The value of possible alternatives that a person gives up when making one choice instead of another; also known as a trade-off.
An easy-access credit business that makes Glossary 40 high-interest loans secured by personal property collateral, such as jewelry.
The process of dividing investments among different kinds of asset categories, such as stocks, bonds, real estate and cash, to optimize the risk/reward trade-off based on an individual's or institution's specific situation and goals. A key concept in financial planning and money management.
Modern portfolio theory: Principles underlying the analysis and evaluation of rational portfolio choices based on risk-return trade-offs and efficient Diversification.
The largest difference in container availability taking into account past peaks in net demandafter having removed the trend in container demand during the repositioning trade-off period.
Size or measure of anything in three dimensions.
Downshifting often is associated with trade-offs, including a lesser rate of pay and a potential lower standard of living. Common practices in downshifting including purchasing a smaller house or selling property that is not necessary for the desired quality of life.
Asset Allocation Model
A computer model which, given information and forecasts for the various asset classes (return, risk, covariances), will give asset allocations which will be most efficient in terms of the trade-off between risk and return. (See also Optimisation).
FundQuest has strong expertise and many years of experience in the conversion of fee-based brokerage accounts to advisory accounts and can customize an approach to assist with each individual firm's unique set of trade-offs.
exceedingly small tax (on the order of a small fraction of one percent) on consumers, in the form of tiny increases in input costs. The result of this exceedingly small tax is that people at the lowest margins of our labor force live a life of slightly less grinding poverty. Seems a fair trade-off ...
However, the trade-off is that the balanced fund will not be a stellar performer: its stocks are generally those of larger companies that are not very volatile. The balanced fund is often the mutual fund of choice among the risk-averse.
The strategic process of dividing investment dollars among various asset classes, typically among cash investments, bonds, and stocks, and subsets of these asset classes, to optimize the trade-off between risk and return.
See also: What is the meaning of Index, Transaction, Optimal, Expense, Opportunity cost?