EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 17, Problem 5RQ
To determine
To know:The representation of prospect theory on utility function and comparison of it with standard theory.
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By using the expected utility theory approach with u(x)=x2, choose the optimal decision for three different possible outcomes with probabilities
p(ω1)=1/2, p(ω2)=p(ω3)=1/4,
rewards R(d1,ω1)=£49,R(d1,ω2)=R(d1,ω3)=£25,
R(d2,ω1)=£36,R(d2,ω2)=£100,R(d2,ω3)=£0,
R(d3,ω1)=£81,R(d3,ω2)=R(d3,ω3)=£0
We learned that we can use choice between a gamble over someone's best and worst outcomes and getting an outcome of interest (like getting pizza) for certain as a way to assign numeric values to utility (on a scale of 0 to 1).
Using this method, if you are indifferent between the following:
A gamble that has a 0.3 chance of your best possible outcome (and no lower chance), and a 0.7 chance of your worst possible outcome.
Getting pizza for certain.
it means that your utility for getting pizza is:
You are trying to decide between rescuing a puppy or an older dog. You decide to try to assign some numbers to your
preferences so you can compare options. You estimate that your utility for a dog that will chew your furniture is 0.1 and
your utility for a dog that can go on hikes with you is 0.8. You expect that a puppy will have an 70% chance of chewing
your belongings and a 90% chance of going on hikes.
What is your expected utility for getting the puppy?
Chapter 17 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 17.3 - Prob. 1MQCh. 17.3 - Prob. 2MQCh. 17.3 - Prob. 1.1MQCh. 17.3 - Prob. 1.2MQCh. 17.3 - Prob. 2.2MQCh. 17.3 - Prob. 1.3MQCh. 17.3 - Prob. 1TTACh. 17.3 - Prob. 2TTACh. 17.4 - Prob. 1TTACh. 17.4 - Prob. 2TTA
Ch. 17.4 - Prob. 1.1TTACh. 17.4 - Prob. 2.1TTACh. 17.4 - Prob. 1MQCh. 17.4 - Prob. 1.2TTACh. 17.4 - Prob. 2.2TTACh. 17.5 - Prob. 1MQCh. 17.5 - Prob. 2MQCh. 17.6 - Prob. 1TTACh. 17.6 - Prob. 2TTACh. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - Prob. 4RQCh. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 8RQCh. 17 - Prob. 9RQCh. 17 - Prob. 10RQCh. 17 - Prob. 17.1PCh. 17 - Prob. 17.2PCh. 17 - Prob. 17.3PCh. 17 - Prob. 17.4PCh. 17 - Prob. 17.5PCh. 17 - Prob. 17.6PCh. 17 - Prob. 17.7PCh. 17 - Prob. 17.8PCh. 17 - Prob. 17.9PCh. 17 - Prob. 17.10P
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