True or False questions and brief explanation for each question: 1. A person that chooses the...

True or False questions and brief explanation for each question:

1. A person that chooses the alternative that has the highest Expected Value, when risk is involved, violates the assumptions of expected utility maximisation. ? True ? False

2. An expected utility maximizer with u(x) = log(x) rejects all fair gambles (i.e. those with an expected value of zero). ? True ? False

3. Prospect Theory can explain the Ellsberg Paradox. ? True ? False

4. Sophisticated Quasi-Hyperbolic Discounters behave time consistently, as they know that they will have a present bias in future decisions and therefore act to eliminate the bias. ? True ? False

5. The outcome resulting from a Nash Equilibirum is socially efficient, since in a Nash Equilibrium all players play best responses to each other. ? True ? False

6. Rational preferences should only depend on the person’s own outcomes (such as their own consumption, wealth, etc.) ? True ? False

7. Jack, who has the utility function u(x, y) = x − γy, where x is his own material payoff, while y is the material payoff of his neighbour, can be described as envious. ? True ? False

8. Somebody who plays the lottery cannot be an expected utility maximizer. ? True ? False

9. If somebody is taking drugs, then that does not necessarily mean that she/he cannot be an exponential discounter. ? True ? False

10. The Allais Paradox demonstrates that many humans evaluate the same lotteries differently if they are combined with the same other lottery. ? True ? False

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Rahul Sunny answered 10 months ago

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