There is an urn containing 90 balls: 30 of them are red, and the other 60 are either black or white. One ball will be drawn randomly, and its color will be inspected. R denotes the event of a red ball drawn from the urn and the events B, W are defined similarly. Gambling on an event means receiving $100 if the even obtains and zero otherwise. Consider the following gambles: = (R: 0, B: 100, W: 0), = (R: 0, B: 100, W: 100). P= = (R: 100, B:0, W:0), y= (R: 100, B:0, W: 100), The most common preferences are r>r' and y'>y.

There is an urn containing 90 balls: 30 of them are red, and the other 60 are either black or white. One ball will be drawn randomly, and its color will be inspected. R denotes the event of a red ball drawn from the urn and the events B, W are defined similarly. Gambling on an event means receiving $100 if the even obtains and zero otherwise. Consider the following gambles: = (R: 0, B: 100, W: 0), = (R: 0, B: 100, W: 100). P= = (R: 100, B:0, W:0), y= (R: 100, B:0, W: 100), The most common preferences are r>r' and y'>y.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

(b) Suppose the DM has maxmin expected utility with utility
function u(a) = a. Let C denote the DM's set of beliefs about
the states. Which of the following set of beliefs can
accommodate the majority choices?
O C=
{(p(red), p(black), p(white)): p(red) = 1/3, p(black) = [1/3, 1/2]}
O C=
{(p(red), p(black), p(white)): p(red) = p(black) = p(white) = 1/3}
O C=
{(p(red), p(black), p(white)): p(red) = 1/3, p(black) = [1/4, 1/3]}
O C={(p(red), p(black), p(white)): p(red) = 1/3}

There is an urn containing 90 balls: 30 of them are red, and the other 60 are either black or
white. One ball will be drawn randomly, and its color will be inspected. R denotes the event of
a red ball drawn from the urn and the events B, W are defined similarly. Gambling on an event
means receiving $100 if the even obtains and zero otherwise. Consider the following gambles:
The most common preferences are r>r and yy.
x= (R: 100, B:0, W:0), a = (R: 0, B: 100, W:0),
y= (R: 100, B:0, W: 100), = (R: 0, B: 100, W: 100).
a. Can the majority choice pattern be
explained by (subjective) EU?
O No
Yes

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