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A gamble is said to be fair if each player has the same expected outcome. For the game to be fair, how much must player 2 receive if she wins?
Any Williams student who decides to transfer to Amherst will cause the average IQ score to rise at both schools. Is this possible? How?
Graph the probability distribution for n = 2,5,10,20. What effect does an increase in n have on the shape of the distribution?
What is the correlation and covariance between variables? Can you put each variable in a distribution plot?
If individuals always prefer consumption bundles in which y = 2x, how much x and y will be produced?
Define the term multicollinearity. Explain how you would detect its presence in a multiple regression equation you have estimated.
In the case of data with housing starts illustrate the use of fourth-order autocorrelation using the DW test and the LM test.
What is the US opportunity cost of producing food? Of clothing? Why? What is Japan's opportunity cost of producing food? Of clothing? Why?
Plot the assessments from parts a, b, and c on the same graph and compare them. Why do you think they differ?
What are the implications for settlements in real-world court cases? What would happen if the defendant's expected value were less than the plaintiff's?
If they both agree that the probability of rain tomorrow is 0.30, what can you say about their utility functions?
Would you stay home or go to the coast? What arguments would you use to support your position?
Why is this inconsistent with expected utility? What explanation can you give for behavior? Would you drive across town to purchase popper at department store?
Explain why this is inconsistent with expected utility. How would you explain this kind of behavior?
Explain why this pattern of choices is inconsistent with expected utility. What other considerations might be taken into account?
How to perform a sensitivity analysis. Can you give some rules for clear thinking that would help a decision maker in these aspects of decision making?
In your own words, explain why the axioms that underlie expected utility are important to decision analysis.
Draw a decision tree for Don Newcomb's problem. What is the significance of his statement that he would sell the business for 20 billion credits?
We stated that to assess the risk tolerance value of R for the exponential utility function. Show why this assessment procedure works.
Suppose he does not own the deal. What equation must be solved to find the greatest amount he would be willing to pay for the deal?
What is an appropriate strategy for the investor? If he wins the bet, should he invest? What if he loses the bet?
Do you consider yourself to be risk-averse? Would you purchase probabilistic insurance? Draw a decision tree for this problem.
A biopharma project being pursued by Hopfer Pharmaceutical has a negative NPV of -$28 million Still. Should Hopfer take the pioneer option?
What variables would you include in your analysis? What value would you need to compute using those variables?
Would Shu Mei want to do this? What is the expected monetary value of this option? Assume resale value is 40% of original price.