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Unformatted text preview: Kata Bognar [email protected] Economics 142 Probabilistic Microeconomics UCLA Fall 2009 Homework Assignment 2. Due date: October 26, 2009 1. (Expected Utility Representation) Assume that there are two possible states of  nature, nuclear war or peace. Dr. Strangelove believes that nuclear war is three times as likely as peace. Denote x W the amount of money Dr. Stangelove has in case of war and x P the amount of money he has in case of peace. Dr. Strangelove is very strange, he strictly prefers ( x W ,x P ) to ( x W ,x P ) if x W > x W or if x W = x W and x P > x P . Is there an expected utility representation of Dr. Strangelove’s preferences? If yes, provide a vNM utility function, if no explain why not. 2. (Bayesian Updating) Soviet Premier Dmitry Kisov claims that his country has a  doomsday device which will automatically destroy all life on Earth if there is a nuclear strike in the Soviet Union. US President Merkin Muffley feels that Kisov may bluff and think that it is equally likely that the Soviets have or not have the...
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This note was uploaded on 01/25/2010 for the course ECON ECON 142 taught by Professor Bognar during the Fall '09 term at UCLA.
- Fall '09