16. Utility
U
0 20 30 33 35 40 50 Income
(thousands
of euros)
17. Utility
U
0 20 30 33 35 40 50 Income
(thousands
of euros)
Here’s a person a person with three options.
Contender may:
1. retain current income level (€35,000) without taking any risk;
2. take a fair bet with a 50-50 chance of winning or losing €5,000;
3. take a fair bet with a a 50-50 chance of winning or losing
€15,000.
19. Utility
U
U1
Income
0 20 25 35 (thousands
of euros)
20. Utility
U
U1
Income
0 20 25 35 (thousands
of euros)
Assume that during next year a person with €10,000 current
income faces a 50 percent chance of incurring €4,000 in
unexpected medical bills.
Without insurance, the person’s utility would be U1, - i.e. the
utility of the average of €6000 and €10,000.
29. A Nash equilibrium is a set of
strategies, one for each player,
that are each best responses
against one another.
30.
31. In a two-player games, a Nash
equilibrium is a pair of
strategies (a*,b*) such that a* is
an optimal strategy for A
against b* and b* is an optimal
strategy for B against A*.
