Econ171-Spring2010-Midterm1-sols

Econ171-Spring2010-Midterm1-sols - Economics 171 Decisions...

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Economics 171: Decisions Under Uncertainty Midterm 1 Solutions: Spring 2010 1. (20 pts) Four tickets numbered one through four are placed in a hat. You must choose a number from one to four. One number will be drawn randomly. Each number is equally likely to be drawn. If the number you choose is drawn you receive that amount. If the number you choose is not drawn you receive nothing. a. What actions are available to you? {1, 2, 3, 4} b. What states of nature can occur? {1, 2, 3, 4} c. What are the possible outcomes? {0, 1, 2, 3, 4} d. Which action will be chosen according to the maximin criterion? All of the actions have a minimum payoff of zero. Maximin is indifferent between all four actions.

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2. (20 pts) An unfair coin has probability 0.25 of coming up heads and probability 0.75 of coming up tails. The coin will be flipped three times. The random variable X is equal to the total number of heads given the three flips. a. Compute the probability mass function (the distribution) of X .
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Econ171-Spring2010-Midterm1-sols - Economics 171 Decisions...

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