In Exercises 9–14, reduce the given payoff matrix by dominance.
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- Reduce the payoff matrix by dominance. a b c 0-1 -6 2 -4 -11 11 2 3-5 123arrow_forwardA. What is the difference among Deterministic model, Stochastic model and Hybrid model? Explain with examples.arrow_forward2 Portfolio Choice Consider an agent with a wealth w who has to decide how to invest it. She has two choices: to keep in in cash, in which case it will neither grow nor shrink, or to invest it in a startup. There is a 5% chance the startup will grow to 50x the initial investment and a 95% chance it will fail, meaning she will lose her entire investment in it. Her goal is to pick a quantity a to invest in the asset. 1. Write an expression for her wealth in the event that the startup succeeds and in the event that it fails. These are the two 'states of the world' we are interested in for this problem. 2. Assume her utility function is given by In(w) and that she is an expected utility maximizer. Write her optimization problem. 3. Find the first order condition of the optimization problem. 4. Use the first order condition to the optimization problem to find a formula for the optimal startup investment. 5. Now, suppose that instead of being an expected utility maximizer, she makes…arrow_forward
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