Exam 13: Pure Strategies With Uncertain Payoffs

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 85 percent chance that firm B will charge a high price and an 15 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?

-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. If firm A is risk neutral, what is the subgame perfect equilibrium for this game?

-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 actual payoffs to both players in this game are: I. (12, 15). II. (16, 16). III. (40, 12). IV. (12, 20). Which of the following is correct?

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

Suppose that a raffle ticket costs $10 and there is an 80 percent chance of not winning. For this raffle to be considered a fair gamble, the winning prize must be worth:

-Consider the entry advertising game depicted in Figure 13.8. Payoffs are in thousands of dollars. If David advertizes on TV, there is a 70 percent probability that Goliath will advertize on the radio and an 30 percent probability that Goliath will advertize in newspapers. If David advertizes in magazines, there is a 50 percent probability that Goliath will advertize on the radio or in newspapers. What is the riskier strategy profile for David?

s -Consider the game depicted in Figure 13.1, which summarizes the payoffs from alternative strategy profiles from an optimistic state of nature. 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. 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 = 0.5M. This individual can best be described as risk:

Uncertainty refers to:

A risk averse individual:

-Consider the game depicted in Figure 13.4, which summarizes the payoffs from alternative strategy profiles from state of nature Y. The Nash equilibrium strategy profile is:

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, which project has the highest expected rate of return for investor 3?

Suppose that an individual's utility of money function is U = 5M ⁵. This individual can best be described as risk:

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. Which of the following statements is correct?

-Consider Figure 13.5, which depicts the risk-return indifference curves for three investors. If the projects are mutually exclusive, for which project is investor 2 indifferent between accepting and rejecting?

Suppose that an individual's utility of money function is U = 0.65M ^0.75. This individual can best be described as risk:

Suppose that Mr. Kent is planning to fly to Kansas to visit his silver-haired mother for 16days. Mr. Kent lives in New York City and will depart from LaGuardia airport. Mr.Kent's utility function for the trip is U = 2T ^1/2, where T is the length of the visit in days. Due to chronic congestion and weather delays there is a 10 percent probability that the flight will be cancelled and Mr. Kent is forced to cancel his trip. Mr. Kent can best be describes as:

Suppose that an individual's utility of money function is U = M ^2/5. This individual can best be described as risk:

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. The expected utility of this trip is: