Unformatted text preview: 2. MWG, 6.C.8. Prove this in two ways: (a) as a corollary of Pratt’s Theorem; and (b) directly. (Hint for (b): write R xu 00 dF ( x ) = R ( xu )( u 00 /u ) dF ( x ).) 3. MWG, 6.C.9. Add a part (e): For t = 0 , 1, let y t be a nondegenerate, zero-mean random variable with cdf F t . Let F 1 be strictly riskier than F : the expectation of any strictly concave function on the support of F is lower under F 1 than under F . If v 000 > 0, show that E [ v ( x + y 1 )] > E [ v ( x + y ]. Hence any increase in risk leads to more precautionary saving. 4. MWG, 6.E.2. (Suggestion: prove this two ways, using the ﬁrst order conditions and using the SSCP. Either of course is ﬁne on its own, but notice that the argument appealing to the SSCP is shorter and eﬀortlessly deals with corner solutions.) 1...
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- Spring '10
- Microeconomics, risky asset, Professor Schlee Problem, cdf Ft