Problem Set 4
Due: Beginning of class, Wednesday April 6, 2016
You are free to work in groups of 1, 2, or 3 and submit one
assignment for your group. All questions are equally weighted.
1. Answer the following questions with a brief explana
Problem Set 3 Solutions
1. Answer the following questions with a brief explanation (a couple of sentences is fine).
(a) Why might it be beneficial for you to pre-commit to an action in a strategic situation? Is this always a good idea?
Problem Set 4 Solutions
1. (a) What are the certainty equivalent and the risk premium for an individual facing a lottery?
What happens to both of these if an individual becomes less risk averse?
The Certainty Equivalent (CE) is the minimum