Suppose Peter is trying to decide whether to put his money in a regular savings that will make 100,000 pesos in one year or in a special fund that depends on market condition over the year. If the market goes up, the special fund will make 150,000 pesos. If the market goes down, the special fund will make 50,000 pesos. a. Make a decision matrix for this problem. b. Make a decision tree for this problem c. What will a conservative (maximin) decision maker do?

Suppose Peter is trying to decide whether to put his money in a regular savings that will make 100,000 pesos in one year or in a special fund that depends on market condition over the year. If the market goes up, the special fund will make 150,000 pesos. If the market goes down, the special fund will make 50,000 pesos. a. Make a decision matrix for this problem. b. Make a decision tree for this problem c. What will a conservative (maximin) decision maker do?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.2P

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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:
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