Quiz 1 Questions
ECOS3012  Strategic Behavior, Semester 1, 2011
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Question 1.
Assume that there are two states of the world and a typical action is denoted by a
vector (
x, y
) where
x
≥
0 and
y
≥
0 denotes monetary reward in the two states. Consider the utility
functions
U
(
x, y
) =
x
α
y
1
/
2
,
V
(
x, y
) =
α
log(
x
) +
β
log(
y
) where 0
< α < β <
1.
A decision maker is necessarily consistent with the expected utility hypothesis if her preferences are
give by the utility
A. Either U or V.
B. Neither U nor V.
C. Only U.
D. Only V.
Question 2.
Suppose there are three states of the world and a typical action is given by a triple
(
x, y, z
), denoting the monetary reward in the three states of the world. Consider two actions
A
= (
x, y, z
)
and
B
= (ˆ
x,
ˆ
y, z
).
( Both actions give the same reward in state 3).
Now consider any other actions
C
= (
x, y, z
*
) and
D
= (ˆ
x,
ˆ
y, z
*
) obtained from A and B by changing the reward in state 3. Suppose a
Decision Maker (DM) is known to satisfy Expected Utility Hypothesis and it is known that she strictly
prefers A to B.
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 Spring '11
 etw
 Game Theory, Utility, Expected utility hypothesis, B. Alice

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