14.123 Microeconomic Theory III
Final Make Up Exam
March 16, 2010
(80 Minutes)
1. (30 points) This question assesses your understanding of expected utility theory.
(a) Show that there exists a preference relation on preferences that satises the independen
Chapter 1
Theory of Choice
In these notes, I will summarize the basic ideas in choice theory, which you must be
familiar with from 14.121. I will describe three ways of modeling individual choice,
namely choice function, preference, and utility maximizati
14.123 Microeconomic Theory III
Problem Set 4
The due date for this assignment is Tuesday March 16
1. Find a sequential equilibrium of the following game, in which Player 1 does not know
whether Player 2 knows that Player 1 is rational. (The initial proba
14.123 Microeconomic Theory III
Problem Set 3
The due date for this assignment is Thursday March 11
1. Lecture Notes; Chapter 6.4, Exercise 8.
2. Alice and Bob seek each other. Simultaneously, Alice puts eort sA and Bob puts eort
sB to search. The probabi
14.123 Microeconomic Theory III
Problem Set 1
The due date for this assignment is Thursday February 11.
1. Let P be the set of all lotteries p = (px , py , pz ) on a set C = cfw_x, y , z of consequences.
Below, you are given pairs of indierence sets on P
14.123 Microeconomic Theory III
Problem Set 2
The due date for this assignment is Thursday February 25 (You can return it on
Tuesday March 1 without penalty.)
1. There are two urns, A and B , each consisting of 100 balls, some are black and some
are red.
Chapter 2
Decision Making under Risk
In the previous lecture I considered abstract choice problems. In this section, I will focus
on a special class of choice problems and impose more structure on the decision makers
preferences. I will consider situation
Chapter 3
Decision Making under Uncertainty
In the previous lecture, we considered decision problems in which the decision maker
does not know the consequences of his choices but he is given the probability of each
consequence under each choice. In most e
Chapter 9
Correlated and Sequential Equilibria
In this lecture, I will cover two important equilibrium concepts, namely correlated equilibrium and sequential equilibrium. Correlated equilibrium relaxes the assumption in the
Nash equilibrium that the playe
Chapter 10
Reputation Formation
In a complete information game, it is assumed that the players know exactly what other
players payos are. In real life this assumption almost never holds. What would happen
in equilibrium if a player has a small amount of d
Chapter 8
Rationalizability
The denition of a game (N, S, u1 , . . . , un ) implicitly assumes that
1. the set of players is N , the set of available strategies to a player i is Si , and the
player i tries to maximize the expected value of ui : S R accord
Chapter 7
Preliminary Notions in Game
Theory
I assume that you recall the basic solution concepts, namely Nash Equilibrium, Bayesian
Nash Equilibrium, Subgame-Perfect Equilibrium, and Perfect Bayesian Nash Equilibrium, from 14.122 very well. In the next t
Chapter 5
Stochastic Dominance
In this lecture, I will introduce notions of stochastic dominance that allow one to determine the preference of an expected utility maximizer between some lotteries with
minimal knowledge of the decision makers utility funct
Chapter 6
Alternatives to Expected Utility
Theory
In this lecture, I describe some well-known experimental evidence against the expected
utility theory and the alternative theories developed in order to accommodate these
experiments. (I have posted a comp