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Economics 171

Economics 171. Some examples. Lunch. 1. (like 1.1 in the text) A lunch menu contains only two items: a meat dish and a fish dish. The diner thinks that the meat can either be good or bad; the same with the fish. List the uncertain exclusive events and the decisions.

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Economics 171

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  1. Economics 171 Some examples

  2. Lunch • 1. (like 1.1 in the text) A lunch menu contains only two items: a meat dish and a fish dish. The diner thinks that the meat can either be good or bad; the same with the fish. List the uncertain exclusive events and the decisions. • Further contemplation suggests another decision: go and eat elsewhere. Represent that.

  3. More lunch • Even more thought suggests that another relevant event is what the diner's mom is going to serve for dinner at night. Suppose that it is either roast pork loin or halibut in puff pastry. What now are the events? • Suppose that the diner will never decide on fish for lunch unless the meat at lunch is bad. The event space can be reduced to five events. Show how.

  4. Silverware production • 2. (Like 1.3 in the text). A production line can produce knives, forks, or spoons. The output type can be changed but only between shifts, of which there are three each day. In addition, the production manager decides once each day the outputs of the three shifts. List the possible production decisions. (It is immaterial whether the output is made on day shift, swing shift, or night shift.)

  5. More silverware • Demand for output of each type on any one day is either zero or equal to the product of two shifts. List the possible events. • On a particular day the firm has in stock no knives, one shift's worth of forks, and two shifts worth of spoons. Build the state decision matrix and consider the merits of some of the production managers possible decisions.

  6. No-fault quiz: scoring rules • Three true-false items: • Nevada is larger than Montana .7 (i.e., probably) • Square root of two is an irrational number .9 (i.e. probably) • Syracuse won the NCAA basketball tournament last night .5 (i.e. don’t know) • Penalty score • =100*((.7-0)2+(1-.9)2+(1-.5)2) = 75

  7. No-fault quiz: True or false? • Greek civilization is older than Roman. • Sir Isaac Newton invented geometry. • A soufflé is made using more egg whites than egg yolks. • Nashville’s motto is “music city U.S.A.”

  8. Insurance

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