Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Exercise 1.6. Consider a decision-maker whose subjective probability distribution over the set of possible states 9 is p = (12(5)),(9. We ask him to tell

image text in transcribed
Exercise 1.6. Consider a decision-maker whose subjective probability distribution over the set of possible states 9 is p = (12(5)),(9. We ask him to tell us his subjective probabilin distribution. but he can lie and report any distribution in MD.) that he wants. To guide his reporting decision. we plan to give him some reward Y(q,.i') that will be a function of the probability distribution q that he reports and the true state of nature 3 that will be subsequently observed. a. Suppose that his utility for our reward is u(Y(q.s).s) = 9(5). [or every 1; in 1(0) and every 5 in I}. Will his report 4 be his true subjective probability distribution p? If not, what will he report? b. Suppose that his utility for our reward is u(Y(q,s).s) = log,(q(s)), for every q and 5. Will his report q be his true subjective probability distri- bution 1:? If not, what will he report

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Global Development And The Environment Perspectives On Sustainability

Authors: Joel Darmstadter

1st Edition

1317335686, 9781317335689

More Books

Students also viewed these Economics questions

Question

What is the law of Prgnanz and how can it be illustrated?

Answered: 1 week ago