Exercise 2. 1. How could they do that! They abducted Speedy, your favorite tortoise! They asked for $1,000 in unmarked bills and threatened to kill Speedy if you don't pay. Call the tortoise-napper Mr. T. Let the possible outcomes be as follows: o, you don't pay and speedy is released 02: you pay $1,000 and speedy is released 03: you don't pay and speedy is killed 04: you pay $1,000 and speedy is killed You are attached to Speedy and would be willing to pay $1,000 to get it back. However, you also like your money and you prefer not to pay, conditional on the two separate events "Speedy is released" and "Speedy is killed": your ranking of the outcomes is 0₁ > 04. On the other hand, you you you 03 you are not quite sure of what Mr. T's ranking is. (a) Suppose first that Mr T has communicated that he wants you to go to Central Park tomorrow at 10:00am and leave the money in a garbage can; he also said that, two miles to the East and at the exact same time, he will free Speedy in front of the police station and then go and collect his money in Central Park. What should you do? (b) Suppose that Mr T is not as dumb as in part (a) and he instead gives you the following instructions: first you leave the money in a garbage can in Central Park and then he will go there to collect the money. He also told you that if you left the money there then he will free Speedy, otherwise he will kill it. Draw an extensive form or frame to represent this situation.
Exercise 2. 1. How could they do that! They abducted Speedy, your favorite tortoise! They asked for $1,000 in unmarked bills and threatened to kill Speedy if you don't pay. Call the tortoise-napper Mr. T. Let the possible outcomes be as follows: o, you don't pay and speedy is released 02: you pay $1,000 and speedy is released 03: you don't pay and speedy is killed 04: you pay $1,000 and speedy is killed You are attached to Speedy and would be willing to pay $1,000 to get it back. However, you also like your money and you prefer not to pay, conditional on the two separate events "Speedy is released" and "Speedy is killed": your ranking of the outcomes is 0₁ > 04. On the other hand, you you you 03 you are not quite sure of what Mr. T's ranking is. (a) Suppose first that Mr T has communicated that he wants you to go to Central Park tomorrow at 10:00am and leave the money in a garbage can; he also said that, two miles to the East and at the exact same time, he will free Speedy in front of the police station and then go and collect his money in Central Park. What should you do? (b) Suppose that Mr T is not as dumb as in part (a) and he instead gives you the following instructions: first you leave the money in a garbage can in Central Park and then he will go there to collect the money. He also told you that if you left the money there then he will free Speedy, otherwise he will kill it. Draw an extensive form or frame to represent this situation.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Exercise 2. 1. How could they do that! They abducted Speedy, your favorite
tortoise! They asked for $1,000 in unmarked bills and threatened to kill
Speedy if you don't pay. Call the tortoise-napper Mr. T. Let the possible
outcomes be as follows:
o,
you don't pay and speedy is released
02: you pay $1,000 and speedy is released
03: you don't pay and speedy is killed
04: you pay $1,000 and speedy is killed
You are attached to Speedy and would be willing to pay $1,000 to get it back.
However, you also like your money and you prefer not to pay, conditional
on the two separate events "Speedy is released" and "Speedy is killed": your
ranking of the outcomes is
0₁ >
04. On the other hand, you
you you 03 you
are not quite sure of what Mr. T's ranking is.
(a) Suppose first that Mr T has communicated that he wants you to go to
Central Park tomorrow at 10:00am and leave the money in a garbage can;
he also said that, two miles to the East and at the exact same time, he will
free Speedy in front of the police station and then go and collect his
money in Central Park. What should you do?
(b) Suppose that Mr T is not as dumb as in part (a) and he instead gives you
the following instructions: first you leave the money in a garbage can in
Central Park and then he will go there to collect the money. He also told
you that if you left the money there then he will free Speedy, otherwise
he will kill it. Draw an extensive form or frame to represent this situation.
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