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Unformatted text preview: each branch, to label who moves at each decision node (the executive or Nature), and to label the change in wealth at each terminal node. Assume there are no brokerage commissions or taxes. 2) Suppose the executive in Problem 1 is risk-neutral (i.e. assume utility is equal to the expected monetary payoff). Use backwards induction to determine her optimal course of action. 3) Use information sets to construct a decision tree for the executive in Problem 1 in which Nature moves first that is, out of chronological sequence. 4) Alter only the information sets in your decision tree for Problem 3, to depict the executives decision problem under the alternative assumption that she knows today what the firms stock price will be tomorrow (i.e., has insider information). Use backwards induction to determine the executives optimal decision in this case....
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- Spring '11
- Game Theory