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F08 HW1

# F08 HW1 - Kata Bognar [email protected] Economics 142...

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Kata Bognar [email protected] Economics 142 Probabilistic Microeconomics UCLA Fall 2008 Homework Assignment 1. Due date: October 14, 2008 1. (Independence Axiom) Ilsa Lund has a share in the local food co-op so every [5] sunday she gets a basket of fruits. Unfortunately for Ilsa, the content of the fruit basket is uncertain. However she can choose from different options. Basket I has apples with probability 1 / 3 bananas with probability 1 / 6 oranges with probability 1 / 2 Basket II has mangos with probability 1 / 5 oranges with probability 4 / 5 Basket III has bananas with probability 1 / 3 mangos with probability 4 / 15 oranges with probability 2 / 5 Basket IV has apples with probability 4 / 9 bananas with probability 5 / 9 . Assume that Ilsa’s preferences satisfy the Independence Axiom and she is indif- ferent between Basket I and Basket II. How does she rank Basket III and Basket IV? Please explain your answer.

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F08 HW1 - Kata Bognar [email protected] Economics 142...

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