MA Homework 5

Classwork 8 1) A firm has three investment options, outlined in the table below with payouts listed in thousands:

a) If the firm uses an expected value approach, which decision should be made? b) Two different decision makers assign the following indifference probabilities to each of

the ‘middle’ outcomes in the table. Use these outcomes to make a utility decision table for each decision maker.

c) Using the expected utility decision method, which decision will each of them make? Why? d) Why do they end up making different decisions? Which decision maker is being more aggressive?

Classwork 9 1) A cat is trying to catch a mouse. The mouse has two survival strategies: run or hide; the cat has two hunting strategies: ambush or patrol. The table below shows the percentage chance of survival for the mouse under each combination of strategies.

a) What is the best strategy for the mouse? Explain. b) What is the best strategy for the cat? Explain. c) Which player has a dominated strategy? Which player chooses their strategy based on

the Nash equilibrium? 2) Consider the following game. Which decision should each player make? Briefly explain why

3) It is the last day before the election, and the democratic and republican senate candidates have to decide where to have their final rallys. The numbers in the table represent the amount the republican candidate’s polling will increase by each combination of choices. Which city should each candidate choose and why?

Ambush CAT Patrol

Run .2 .4

MOUSE

Hide .8 .6

Rep ⇊ Dem ⇉ Newark Toms River Trenton Jersey City

Newark 0 -15 -8 20

Toms River 30 -5 5 -10

Trenton 10 -25 0 20

Jersey City 20 20 10 15