Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 15, Problem 7Q
To determine
The point where an outcome becomes risky.
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In what way does strategic decisions different from other kinds of corporate decision?
What does it mean to be Risk Averse?
If it is impossible to acquire sufficient information to make an informed decision, what can be the least risky option to take?
Using gut feelings
Not doing anything
Do something because something is always better than nothing.
Let someone else make the decision.
Chapter 15 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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- In the final round of a TV game show, contestants have a chance to increase their current winnings of$1 million to $2 million. If they are wrong, their prize is decreased to $500,000. A contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable?arrow_forwardHow much is his risk on any random day due to late arrival?arrow_forwardDoes the decision you choose turned out to be effective?how?arrow_forward
- In the final round of a TV game show, contestants have a chance to increase their current winnings of $1 million dollars to $2 million dollars. If they are wrong, their prize is decreased to $500,000. The contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable?arrow_forwardWhat is the decision rule? when is it used?arrow_forwardEconomics A person likes to gamble and has $100 on him. He is going to play the following game: if he bets $b, then with probability p, 0 < p< 1, he will win $b; with probability 1 – p, he will lose his $b. He is given the opportunity to play at most 20 times. He is a very disciplined gambler and is going to use the following strategy: • Every time he plays, he will make a bet equal to half of the amount of money he has at that moment. • If the amount of money he has gets to $300 or higher, then he will stop playing. Find the probability that, starting with $100 and given 20 chances to play the game, this person will get to $300 or more. Formulate this problem recursively by writing down the “Bellman equation." What is (are) the state variable(s)? Be specific about any constraints or initial/boundary conditions for this problem.arrow_forward
- A risk-averse manager is considering a project that will cost £100. There is a 10 percent chance the project will generate revenues of £100, an 80 percent chance it will yield revenues of £50, and a 10 percent chance it will yield revenues of £500. Should the manager adopt the project? Explain. What will a risk-neutral and risk-loving manager do in the same situation?arrow_forwardSelect correct and appropriate answer.arrow_forwardDefine risk aversion and give an example of a risk-averse person?arrow_forward
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