Unformatted text preview: c s ) given by u ( c s ) = ln c s . (a) If there is a 25 percent probability that Ms. Fogg will lose $1000 of her cash on the trip, what is the trip’s expected utility? What are the states of nature? (b) Suppose that Ms. Fogg can buy insurance against the loss at an actuarially fair rate. How much of the loss will she insure? Do the calculation. (c) What is the maximum amount Ms. Fogg would be willing to pay to insure her $1000? Relate this to the certainty equivalent. (d) Is there a price p for a dollar of insurance above which Ms. Fogg will choose to purchase zero insurance? If so, ﬁnd it. 4. In the following normalform game, which strategy combinations survive iterated elimination of strictly dominated strategies? What are the pure strategy Nash equilibria of the game? Player 2 Player 1 L C R U 2,6 0,4 6,0 M 3,0 2,2 7,3 D 6,8 2,4 4,5 1...
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 Spring '06
 MASSON
 Economics, Microeconomics, Game Theory, Ms. Fogg

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