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Problem Set 3

Problem Set 3 - distribution(x y that Person i gets to...

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Psychology and Economics Spring 2010 Prof. Sydnor Problem Set 3 Due Wednesday April 21 st 1. Consider a person (person i ) who has preferences about some money that he and another person (person j ) are going to receive. Just like in class, person i has the following preferences that depend on the amount of money that they each have: ݑ ൫ݔ , ݕ ൯ ൌ ቊ ߩ ݕ ൅ ሺ1 െ ߩ ሻݔ ݂݅ ݔ ൒ ݕ ߪ ݕ ൅ ሺ1 െ ߪ ሻݔ ݂݅ ݔ ൑ ݕ a) Suppose that 1 > ρ > 0 > σ . Give a brief intuitive interpretation of these preferences. b) Write down a series of comparisons between two outcomes (A vs B) where each outcome is a
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Unformatted text preview: distribution (x, y) that Person i gets to choose over that would provide evidence of him having preferences as in part (a). For each comparison you give, make sure to explain which choice Person i would make and what we could conclude from that choice about the parameters ρ and σ for Person i. [Note here I am asking you to basically think of the experiments you could run and the choices Player i would have to make for you to conclude that the preferences are as an (a)]....
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