Question 2: There are three alternatives X = {x, 22, 23). Frank faces uncertainty about which...
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Question 2: There are three alternatives X = {x₁, 22, 23). Frank faces uncertainty about which of the two states S = {81, 82} will be realized. His preference over acts admits a subjective expected utility representation. 1. Suppose we know that Frank strictly prefers act f to act g: Act f: Receive ₁ if the state is $₁, and receive 22 if the state is 82. Act g: Receive x3 if the state is 81, and receive 22 if the state is 82. What can we infer about his preference between act f' and act g'? Act f': Receive 22 if the state is 8₁, and receive x3 if the state is 82. Act g': Receive x2 if the state is 8₁, and receive ₁ if the state is 82. 2. Suppose Frank's VNM utility function is u(x₁) = 5, u(x2) = 3, u(x3) = 0, and he is indifferent between act f" and act g": Act f": Receive ₁ if the state is $₁, and receive x3 if the state is $82. Act g": Receive x2 no matter what the state is. What is Frank's subjective belief about the states? Question 2: There are three alternatives X = {x₁, 22, 23). Frank faces uncertainty about which of the two states S = {81, 82} will be realized. His preference over acts admits a subjective expected utility representation. 1. Suppose we know that Frank strictly prefers act f to act g: Act f: Receive ₁ if the state is $₁, and receive 22 if the state is 82. Act g: Receive x3 if the state is 81, and receive 22 if the state is 82. What can we infer about his preference between act f' and act g'? Act f': Receive 22 if the state is 8₁, and receive x3 if the state is 82. Act g': Receive x2 if the state is 8₁, and receive ₁ if the state is 82. 2. Suppose Frank's VNM utility function is u(x₁) = 5, u(x2) = 3, u(x3) = 0, and he is indifferent between act f" and act g": Act f": Receive ₁ if the state is $₁, and receive x3 if the state is $82. Act g": Receive x2 no matter what the state is. What is Frank's subjective belief about the states?
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Dominance Principle If act f weakly dominates act g in all states then Frank strictly prefers f to g ... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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