Say an individual is faced with the decision of whether to buy home fire insurance or...
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Say an individual is faced with the decision of whether to buy home fire insurance or not (Let's not worry about a world with laws at this time). The states of nature are that no fire occurs (with probability .999) or a fire occurs (with probability .001). Here is the payoff table for the decision maker State of Nature No Fire Decision Purchase insurance Do not purchase Ins. a-(3 points) what is the expected value of each decision and which decision is the best for the decision maker? b-(7 points) say the individual is a risk avoider. Make a table with plausible values of utility for the risk avoider, calculate the expected utility of each decision and state which decision is best based on the expected utility idea. Player A A1 A2 100,000 101,000 Consider the following two-person, zero-sum game Player B b1 b2 4 3 5 Fire 100,000 0 6 c-(2 points) explain why the game does not have a saddle point. d-(6 points) determine the optimal mixed strategy solution. e-(2 points) What is the value of the game? Say an individual is faced with the decision of whether to buy home fire insurance or not (Let's not worry about a world with laws at this time). The states of nature are that no fire occurs (with probability .999) or a fire occurs (with probability .001). Here is the payoff table for the decision maker State of Nature No Fire Decision Purchase insurance Do not purchase Ins. a-(3 points) what is the expected value of each decision and which decision is the best for the decision maker? b-(7 points) say the individual is a risk avoider. Make a table with plausible values of utility for the risk avoider, calculate the expected utility of each decision and state which decision is best based on the expected utility idea. Player A A1 A2 100,000 101,000 Consider the following two-person, zero-sum game Player B b1 b2 4 3 5 Fire 100,000 0 6 c-(2 points) explain why the game does not have a saddle point. d-(6 points) determine the optimal mixed strategy solution. e-(2 points) What is the value of the game?
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Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
Posted Date:
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