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Assignment 2

# Assignment 2 - Assignment 2 Econ 177 Professor Garratt...

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Assignment 2: Econ 177 Professor Garratt Consider the following two payment options: Scenario A: A gamble that pays \$100 with probability p and \$0 with probability (1-p). Scenario B: A payment of \$x with probability 1. In the table below, for each cash amount x, write down the probability p at which you would be indifferent between the payment options described in Scenario A and B. As a guide to get started, consider the case where x = 10. Answer the following questions by circling True or False. 1. I would prefer \$10 for sure to a gamble that pays \$100 with probability .05. T or F 2. I would prefer \$10 for sure to a gamble that pays \$100 with probability .1. T or F 3. I would prefer \$10 for sure to a gamble that pays \$100 with probability .2. T or F 4. I would prefer \$10 for sure to a gamble that pays \$100 with probability .3. T or F 5. I would prefer \$10 for sure to a gamble that pays \$100 with probability .4. T or F Suppose you circled T for questions 1-3 and F for questions 4 and 5. Then the value of p that you put in the table below next to \$10 should be somewhere between .2 and .3.

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Assignment 2 - Assignment 2 Econ 177 Professor Garratt...

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