ECON 206

ECON 206 - Economics 206 Spring 2007 (Prof. G. Loury)...

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Unformatted text preview: Economics 206 Spring 2007 (Prof. G. Loury) Assignment 1: Choice under Uncertainty 1. Concerning the Independence Axiom: L L [0 , 1] , L 00 : L + (1- ) L 00 L + (1- ) L 00 (a) ( The Axiom extends to strict preference and to indifference. ) Show that the In- dependence Axiom implies: (i) L L (0 , 1] , L 00 : L + (1- ) L 00 L + (1- ) L 00 (ii) L L [0 , 1] , L 00 : L + (1- ) L 00 L + (1- ) L 00 (b) ( The Axiom implies there is a best and a worst lottery .) Let the set of consequences be finite: C = { c 1 ,...,c N } , and let L n be the lottery giving consequence c n with probability 1, n = 1 ,...,N . Assume, WLOG, that L 1 L 2 ... L N . Then, show that the Independence Axiom implies: lotteries L : L 1 L L N 2. Try to work through the following exercises from the text: page 208 number 6.B.4; and, page 209 number 6.B.6....
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This note was uploaded on 07/06/2009 for the course ECON 206 taught by Professor G.loury during the Spring '07 term at Brown.

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