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
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This note was uploaded on 12/26/2011 for the course ECON 177 taught by Professor Garratt during the Fall '09 term at UCSB.

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

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