Homework 5 - Extra Credit Homework #5: Due November 29th by...

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Extra Credit Homework #5 : Due November 29 th by the end of your scheduled class. Directions : All homework answers MUST be TYPED. No EMAIL SUBMISSIONS. The homework is collected in class. If you can’t be in class then send your homework with a friend or turn it in EARLY under my office door (606 Kern). (1) ($1000) Drawing from our discussion of the Allais Paradox, describe how risk behavior changes for some people as personal wealth rises. This is because as personal wealth rises, losing a little money is no big deal. In the paradox, there are two choices for gamble 1 (A &B) and two choices for gamble (C & D). A&C/B&D are the most logical choices to make, but sometimes, people will choose A&D. This is because A is the insurance and D is the lottery. (2) ($1000) Using the Economics in the Movies workbook, answer the following questions from the Intolerable Cruelty (scene 14) clip: a. Why does asymmetric information create a market for prenuptial agreements? Asymmetrical information is when there is some kind of transaction and one person taking part in the
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