Clancy has $5,000. He plans to bet on a boxing match between Sullivan and Flanagan.He finds that he can buy coupons for $3 that will pay off $10 each if Sullivan wins. Healso finds in another store some coupons that will pay off $10 if Flanagan wins. TheFlanagan tickets cost $1 each. Clancy believes that the two fighters each have aprobability of 1/2 of winning. Clancy is a risk averter who tries to maximize theexpected value of the natural log of his wealth. In order to maximize his expectedutility, he buys.Flanagan tickets. (Answer up to 2 decimal places.)Sullivan tickets and for the rest of the money, he buysYour Answer:

Money = 5,000 If Sullivan Wins Coupon = $3 with payoff$10 If Flanagan wins Coupon = $1 with…

Answered: Clancy has $5,000. He plans to bet on a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Apple and Google are interested in hiring a new CEO. Both firms have the same set of final candidates for the CEO position: Indra, Cao, and Virginia. Both firms need to decide who to make a job offer to, and the hiring process is such that they each only make one job offer. If, say, Apple makes a job offer to Indra and Google makes a job offer to one of the other candidates, then Apple’s probability of success in hiring Indra is pIndra. The same is true for Google. If they both make a job offer to Indra, each has probability pIndra/2 of success. It has been estimated that pIndra = 20%, and pCao = pVirginia = 30% (Note that these probabilities need not add up to 100%). Suppose that both Apple and Google attach a valuation of 10 to successfully hiring Indra, and a valuation of 7 to successfully hiring each of the other candidates. A hiring attempt, if unsuccessful, has a valuation of zero. Convert this story into a game by completing the following game table; Google…
Consider a coin toss experiment and the following assets. Asset A gives £200 if the first is heads, £50 for tails. Asset B gives £200 if the second is heads and £50 for tails. Asset C is half of A plus half of B. Assets A and B are independent. Show that the expected value of each asset is the same and C reduces risk. Explain why C reduces risk?
Clancy has difficulty finding parking in his neighborhood and, thus, is considering the gamble of illegally parking on the sidewalk because of the opportunity cost of the time he spends searching for parking. On any given day, Clancy knows he may or may not get a ticket, but he also expects that if he were to do it every day, the average amount he would pay for parking tickets should converge to the expected value. If the expected value is positive, then in the long run, it will be optimal for him to park on the sidewalk and occasionally pay the tickets in exchange for the benefits of not searching for parking. Suppose that Clancy knows that the fine for parking this way is $100, and his opportunity cost (OC) of searching for parking is $20 per day. That is, if he parks on the sidewalk and does not get a ticket, he gets a positive payoff worth $20; if he does get a ticket, he ends up with a payoff of
Do it correctly this time
Player 1 and Player 2 will play one round of the Rock-Paper-Scissors game. The winner receives a payoff +1, the loser receives a payoff -1. If it is a tie, then each player receives a payoff zero. Suppose Player 2 is using a non-optimal strategy: he/she plays Rock with probability 35%; Paper with probability 45%; and Scissors with probability 20%. Given that Player 1 knows Player 2 is using this strategy, the best response of Player 1 is to play O a mixed strategy with probability 1/3 each (Rock, Paper and Scissors) O Scissors with probability 100% O any strategy (any strategy is a best response for Player 1) O Rock with probability 100% O Paper with probability 100%
David is an expected-utility maximizer that likes to drive fast (and reckless at times), so his probability of an accident is 2/3. David's preferences over wealth are u(w) = vw. Suppose that David's initial wealth is $100. If David has an accident, he incurs a $51 loss. How much is the risk premium David willing to pay to be as well off in case of accident or not?
Firms A and B are contemplating whether or not to invest in R&D. Each has two options: “Invest” and “Abstain.” A firm that invests will invent product X with a probability of 0.5, whereas a firm that abstains is incapable of invention. Investment costs $6. If a firm doesn’t invent X, it makes $0 in revenue. If a firm invests and is the only one to invent X, it becomes a monopolist and generates $20 in revenue. If both firms invent X, each firm becomes a duopolist, and generates $8 in revenue. Revenues are gross figures (i.e. they are not net of investment costs), and there are no costs besides investments costs (i.e. no variable cost of production etc.). The firms are risk-neutral entities, and are uninformed of each other’s investment decisions. The “research and development” game is best analyzed as a simultaneous move game, because the parties lack information about each other’s investment decisions. Find the Nash Equilibria (or Equilibrium) of the “research and development”…
9. Problems and Applications Q9 Dmitri has a utility function U = W, where W is his wealth in millions of dollars and U is the utility he obtains from that wealth. In the final stage of a game show, the host offers Dmitri a choice between (A) $4 million for sure, or (B) a gamble that pays $1 million with probability 0.4 and $9 million with probability 0.6. Use the blue curve (circle points) to graph Dmitri's utility function at wealth levels of $0, $1 million, $4 million, $9 million, and $16 million. Utility (Thousands) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 0 2 4 8 6 10 12 14 Wealth (Millions of dollars) 16 18 20 V Utility Function ?
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