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Here is a different version of the Ellsberg experiment. There are two urns: 0 Urn 1 has 50 blue and 50 green balls 0 Urn
Here is a different version of the Ellsberg experiment. There are two urns: 0 Urn 1 has 50 blue and 50 green balls 0 Urn 2 has 100 balls, blue or green, but the exact ratio of blue vs green is unknown. A 'bet on B1' is an act that gives you a prize 2'} > 0 if a blue ball is drawn from the rst urn, and 0 otherwise. Interpret a bet on B2 (or G1, etc.) in the same manner. (i) Do you prefer B1 or B2? Do you prefer G1 or G2? (ii) Formulate Ellsberg's twourn experiment in the language of Savage. The rst question to answer is: What are the states of the world for this exper iment? Be careful here. A state of the world should be dened so that it simultaneously resolves the uncertainty for any choice you can make. Second, write each of the bets, B1, B2, G1, and G2 as Savage acts over the state space you specied. (iii) The typical choices in this experiment are that a bet on B1 is preferred to a bet on B2 and that a bet on G1 is preferred to a bet on G2. Argue that these choices are inconsistent with the theory of subjective expected utility. In fact, show that these choices violate one of Savage's axioms. Which one
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