Exam 13: Pure Strategies With Uncertain Payoffs

-Consider Figure 13.5, which depicts the risk-return indifference curves for threeinvestors. If the projects are mutually exclusive, which is the most preferred for investor 3?

188 -Consider the pricing game depicted in Figure 13.6. Suppose that if firm A charges a high price there is a 15 percent chance that firm B will charge a high price and an 85 percent chance that firm B will charge a low price. If firm A charges a low price there is an 85 percent chance that firm B will charge a high price and a 15 percent chance that firm B will charge a low price. What is the riskier strategy profile for firm A?

Risk refers to:

Bob is offered the following wager by Nabob. For a payment of $20, Bob can flip five fair coins. If Bob flips three or more heads he wins $100, otherwise he loses $100. The expected value of this wager is:

s -Consider Figure 13.1, which represents an optimistic state of nature and Figure 13.2, which represents a pessimistic state of nature. Suppose that there is a 10 percent probability of an optimistic state of nature and a 90 percent probability of a pessimistic state of nature will prevail. The actual payoffs to both players in this game are: I. (70, 70). II. (80, 80). III. (90, 90). IV. (100, 100). Which of the following is the correct answer?

s -Consider Figure 13.1, which represents an optimistic state of nature and Figure 13.2, which represents a pessimistic state of nature. Suppose that there is a 10 percent probability of an optimistic state of nature and a 90 percent probability of a pessimistic state of nature. The Nash equilibrium strategy profile for this game is:

The standard statistical measure of risk is:

-Consider the game depicted in Figure 13.7 Payoffs are in millions of dollars. Suppose that if firm A charges a high price there is a 25 percent chance that firm B will charge a high price and an 75 percent chance that firm B will charge a low price. If firm A charges a low price there is an 75 percent change that firm B will charge a high price and a 25 percent chance that firm B will charge a low price. If firm A is risk neutral, what is the subgame perfect equilibrium for this game?

Suppose that Professor Nash is planning to attend a 10 day academic conference. His utility function for the trip is U = T ², where T is the length of the conference in days. Professor Nash is concerned that he will be forced to leave the conference early due to an illness in his family. The probability that Professor Nash will have go home is 40 percent. Professor Nash can best be described as:

-Consider the game depicted in Figure 13.7 Payoffs are in millions of dollars. Suppose that if firm A charges a high price there is a 25 percent chance that firm B will charge a high price and an 75 percent chance that firm B will charge a low price. If firm A charges a low price there is an 75 percent change that firm B will charge a high price and a 25 percent chance that firm B will charge a low price. What is the riskier strategy profile for firm A?

-Consider the pricing game depicted in Figure 13.7. Payoffs are in millions of dollars. Suppose that firm A believes that regardless of its strategy, there is a 75 percent chance that firm B will charge a high price and an 25 percent chance that firm B will charge a low price. What is the riskier strategy profile for firm A?

188 -Consider the pricing game depicted in Figure 13.6. Payoffs are in millions of dollars. Suppose that firm A believes that regardless of its strategy, there is a 15 percent chance that firm B will charge a high price and an 85 percent chance that firm B will charge a low price. If firm A is risk neutral, what is the subgame perfect equilibrium for this game?

Suppose that an individual's utility of money function is U = 10M ^0.5. This individual can best be described as risk:

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, which investor is the least risk averse? I. 1 II. 2 III. 3 Which of the following is correct?

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, which is the least risky for investor 1?

-Consider the game depicted in Figure 13.3, which summarizes the payoffs fromalternative strategy profiles from state of nature X. The Nash equilibrium strategy profile is:

-Consider the pricing game depicted in Figure 13.7. Payoffs are in millions of dollars. Suppose that firm A believes that regardless of its strategy, there is a 25 percent chance that firm B will charge a high price and an 75 percent chance that firm B will charge a low price. What is the riskier strategy profile for firm A?

A risk loving individual tends to exhibit _____ marginal utility of money.

-Consider the games depicted in Figures 13.3 and 13.4. Suppose that there is a 60 percent probability that state of nature X will prevail and a 40 percent probability that state of nature Y will prevail. The expected payoffs to both players in this game are:

Suppose that a raffle ticket costs $5 and has a jackpot of $1 million. For this raffle to be considered a fair gamble, the probability of not winning must be: