Question 3 An investor is trying to decide whether to buy stocks or hold cash. Stocks can yield a positive or negative return depending on market conditions, whereas holding cash generates no return independently of market conditions. (a) Formulate this situation in the framework of subjective expected utility. Specify the states, acts, and prior probabilities. (With the given information, there is quite a bit of freedom in specifying all of these parameters). (b) Given your setup from (a), what will the investor do? (c) Now suppose the investor is unable to form a single prior but instead holds a set C of priors, as in the maxmin model. Specify such a set and compute the maxmin expected utility of the two relevant acts (representing decisions to invest or hold cash). What will the investor choose to do? Question 3 An investor is trying to decide whether to buy stocks or hold cash. Stocks can yield a positive or negative return depending on market conditions, whereas holding cash generates no return independently of market conditions. (a) Formulate this situation in the framework of subjective expected utility. Specify the states, acts, and prior probabilities. (With the given information, there is quite a bit of freedom in specifying all of these parameters). (b) Given your setup from (a), what will the investor do? (c) Now suppose the investor is unable to form a single prior but instead holds a set C of priors, as in the maxmin model. Specify such a set and compute the maxmin expected utility of the two relevant acts (representing decisions to invest or hold cash). What will the investor choose to do