Econ+395+Practice+Final+Fall+2008

Econ+395+Practice+Final+Fall+2008 - Economics 395 Topics in...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 395 Topics in Risk and Uncertainty Practice Final Examination Question One Fred owns an asset of uncertain value. Ginger may be interested in buying the asset from Fred, if an appropriate price can be found. The possible values it can take are { } . 3 , 2 , 1 , 0 v Fred and Ginger have the same prior: that each of these values is equally likely. Before negotiating over the sale of the asset, Ginger and Fred each receive private information providing more accurate insight into the value of the asset. Fred receives one of two signals, f 1 or f 2 , where: Signal f 1 tells Fred that the asset has value v = 0 Signal f 2 tells Fred that the value of the asset is not 0 Similarly, Ginger receives one of two signals, g 1 or g 2 , where: Signal g 1 tells Ginger that the asset has value v = 3 Signal g 2 tells Ginger that the value of the asset is not 3 The signals that the agents receive are always true. This means that it is impossible for Ginger to receive signal g 1 at the same time that Fred receives the signal f 1 . Also assume that both agents are rational and risk-neutral and that each knows what private information the other might possibly obtain. The actual signal received by either agent will remain private information, not shared directly with the other. (a) If Fred receives signal
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/13/2010 for the course ECON 330 taught by Professor Minetti during the Fall '08 term at Michigan State University.

Page1 / 4

Econ+395+Practice+Final+Fall+2008 - Economics 395 Topics in...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online