ECON 401

Microeconomics; chapter 1 - class notes * Detailed and comprehensive * For students

Economics 401 Problem Set 9 Answer Key Prof. David A. Miller Tis version: November 6, 2021 1 Choice under uncertainty 1.1 Insurance Emily faces an unavoidable lottery of having income mG = M > 1 in state G and income mB = 1 in state B, where πG is the probability of state G and πB = 1 − πG is the probability of state B. She has an expected utility preference with a state utility function of the following form in each state: v(c) = ln(c) Let cG be her consumption in state G and ...

Economics 401 Problem Set 8 Answer Key Prof. David A. Miller This version: October 26, 2020 1 Choice under uncertainty 1.1 Expected utility practice Consider the following three expected utility functions, and the following three scenarios involving uncertainty. Using a calculator or computer, compute the expected utility for each utility function in each scenario. Expected utility functions: a) ua(c1 , c2) = π1 ln(c1) + π2 ln(c2) b) ub(c1 , c2) = π1 √ c1 + π2 √ c2 c) u...