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<Answer to Assignment- 2>

<Answer to Assignment- 2>. Sup. P4-12. Pro #1 ( The table can be reduced to (1*1) by checking the dominance with (A₅, B₂) Remaining! So ❶ C (a₅) ❷ B (b₂) ❸ E (4). 2. Sup. P4-13, #2 Regular Table: Three possible outcome: 1. major damage; 2. minor damage; 3. no fire

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<Answer to Assignment- 2>

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  1. <Answer to Assignment- 2> • Sup. P4-12. Pro #1 ( The table can be reduced to (1*1) by checking the dominance with (A₅, B₂) Remaining! So ❶ C (a₅) ❷ B (b₂) ❸ E (4)

  2. 2. Sup. P4-13, #2 • Regular Table: Three possible outcome: 1. major damage; 2. minor damage; 3. no fire Three options: Policy-1 Policy-2 Policy-3(No Insurance)

  3. (Opportunity Cost Table)

  4. A₁ A₂ So, To Minimize Total Cost, If Buy Insurance, For Company should go with A₁ (Policy-1) If Considering No Insurance, For Should go with A₃ (No Insurance) By Opportunity Cost Should go with A₂ (Because the smaller chance of damages) A₁ A₂ A₃

  5. 3. Sup. P4-13, Problem #3 Two Dice: D-1 1(1/6) 2(1/6) 3(1/6) …4… D-2 3(1/6) 2(1/6) 1(1/6) …4… 4(1/36) 4(1/36) 4(1/36) So, if you play, the chance of winning is (1/12)=(0.0833) the chance of losing is (11/12)=0.0177 11/12 =3 ̸ 36 = 1 ̸ 12

  6. (-0.16) 9*(1/12)+ (-1)*(11/12)= (-2/12)=(-1/6) So , NOT PLAY!!!

  7. #5. (Sup. P4-14) a. Since: A₂ ------ Dominating A₁, Then B ------ Pick B₂ (To Minimize Loss) Game Value = 4

  8. b. So, A₂ -----Dominating A₁ A-----A₂ B-------- Pick B₁ B-----B₁ Game Value=1

  9. c. ❶ A₁ ------ Dominating A₃ & A₂ Then B-------- Pick B₂ So, A------A₁ B------B₂ (B------ Gain ❷) Game Value (-2)

  10. #6. (Sup P. 4-15) Row Min -2 0 Col Max. 1 3 Col. Max ≠ Row Min No “Saddle Point” P= (0-1)/(-2-3-1+0)= (-1)/(-6) = 1/6 A Use A₁ ------ (1/6) times A₂ ------ (5/6) times Q= (0-3)/(-6) = (3/6) = ½ B B₁ ------ 50% B₂ ------50% V= 1/6 * (-2) + (1-1/6)*(-1) = (-1/3)+5/6 = 3/6 = ½ = 0.5

  11. So, on average, A ------ Gain 0.5% Market Short B ------ Loss 0.5% Market Short • No ------ Because B Lose a) Yes ------ If B has a better chance.

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