Problem Set 4 - Microeconomic Theory: Problem set 4...

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Microeconomic Theory: Problem set 4 Bayesian Games Yves Zenou Exercise 1: The Bayes’ rule One evening, individual A was knocked down by a taxi driver who run away. The informations gathered by the police show that, among the taxis that were out that night, 75% were green and 25% were blue (in this city, taxis can only be blue or green). However, an eyewitness has been found and he asserts that it was a blue taxi. Several experiments have been undertaken and they show that under identical circumstances to that of the accident, an eyewitness sees the correct color in 80% of the cases. (1a) Without the information about the eyewitness, which company should the lawyers of individual A prosecute? (1b) With the information about the eyewitness but without the experi- ments, which company should the lawyers of individual A prosecute? (1c) With the informations about the eyewitness and the experiments, lawyers will update their beliefs by using the Bayes’ rule. . In this case, which company should the lawyers of individual
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This note was uploaded on 06/06/2010 for the course ECON 31 taught by Professor Yvez during the Fall '08 term at University of Maine Orono .

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Problem Set 4 - Microeconomic Theory: Problem set 4...

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