Solution to some problems from exam 2017
Problem 1: Probability weights
Problem 2: Irrespective of wealth & wealth+earning
Problem 3: -10
There are two ways to show that it is inconsistent with expected utility:
i) Normalize u(0) and note that u(3000)>0.8u(4000) is equivalent to 0.25u(3000)>0.2u(4000)
ii) Or simply note that if follows from the independence axiom as we get the last pair of lottery as a two stage lottery where we flip a coin twice and either of the two first lotteries, respectively, after two head.
The first argument does not work on prospect theory due to probability weighing and the independence axiom does not apply to prospect theory.
In this course the exam is digital, and you can use sketching sheets (scantron). You can read about Digital sketches in Inspera before the exam.
When can I use sketching sheets?
If something is difficult to write or draw in Inspera (like equations and graphs), you can use the sketching sheets that are given to you.You are not supposed to give the whole answer in these sketching sheets, only what you have difficulties writing in Inspera.When you use the sketching sheets, please remember to fill in which question the equation or the graph is connected to.
Please note: It is very important that you make sure to allocate time to fill in the headings (the code for each problem, candidate number, course code, date etc.) on the sheets that you will use to add to your answer. You will...
Please bring a smartphone, pad or PC to lecture.