Suppose that the outcome space contains three outcomes {1,2,3). Consider the following four lotteries: A (0.3, 0.7,0) B = (0,0.8,0.2) (0,0.5, 0.5) C = D = (0.6, z, y) Assume that a decision maker is indifferent between A and B, and is indifferent between C and D. Suppose the decision maker's preferences over lotteries satisfy the Independence Axiom, find out 1.y. (Hint: You can use graph to get intuition.)

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Suppose that the outcome space contains three outcomes (1,2,3). Consider the following four
lotteries:
A
B
(0.3, 0.7,0)
(0,0.8,0.2)
C =
(0, 0.5, 0.5)
D = (0.6, x, y)
Assume that a decision maker is indifferent between A and B, and is indifferent between C and D.
Suppose the decision maker's preferences over lotteries satisfy the Independence Axiom, find out
x,y. (Hint: You can use graph to get intuition.)
Transcribed Image Text:Suppose that the outcome space contains three outcomes (1,2,3). Consider the following four lotteries: A B (0.3, 0.7,0) (0,0.8,0.2) C = (0, 0.5, 0.5) D = (0.6, x, y) Assume that a decision maker is indifferent between A and B, and is indifferent between C and D. Suppose the decision maker's preferences over lotteries satisfy the Independence Axiom, find out x,y. (Hint: You can use graph to get intuition.)
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