Economics of Uncertainty and Information assessment

Consider the Allais Paradox. Explain why it is in contrast with the assumptions of
Expected Utility Theory and describe the Common Consequence Effect.

Please answer ONE of the following TWO possible questions. Each question has three subparts – please answer all parts of the question you attempt.
Whichever question you select, you will write three short essays. It is up to you how you use
the words at your disposal, but the total word count should not exceed 2500 words. This is a
strict maximum word limit. Note that in-text referencing is included in the word count, but
the reference list at the end is not. All referencing should be in a Harvard style. Weightings
appear after each sub-part. These weightings give an indication of the appropriate number of
words to devote to each answer.

Don't use plagiarized sources. Get Your Custom Essay on
Economics of Uncertainty and Information assessment
Just from $13/Page
Order Essay

Question 1
a) Consider the Allais Paradox. Explain why it is in contrast with the assumptions of
Expected Utility Theory and describe the Common Consequence Effect. (20%)
b) With reference to Kahneman and Tversky (1979), discuss the Certainty Effect and the
Reflection Effect. Summarize the main characteristics of the Value Function in
Prospect Theory. (50%)
c) With reference to Benartzi and Thaler (1995), establish why the Equity Premium
Puzzle has been considered a puzzle in terms of individual risk preferences. Analyze
the role of Myopic Loss Aversion in explaining the Equity Premium Puzzle. (30%)
Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk.
Econometrica, 47(2), 263-292.
Benartzi, S., & Thaler, R. H. (1995). Myopic loss aversion and the equity premium puzzle. The
Quarterly Journal of Economics, 110(1), 73-92.

Question 2
a) Consider a market with asymmetric information among agents. Explain the difference
between pre-contractual and post-contractual opportunism, and then discuss the effect
that asymmetric information has in terms of Pareto Efficiency. (20%)
b) Consider a market for used cars where there is asymmetric information between
buyers and sellers: sellers know quality of the cars they intend to sell on the market,
but buyers do not. Discuss the supply and the demand for used cars in the presence
of asymmetric information. You should provide the condition(s) under which buyers
and sellers will trade in the market. Support your answer with appropriate equations
and/or diagrams. Define the concept of the market clearing equilibrium in the context
of a used car market under adverse selection. You should first discuss the case where
the price is equal to zero and then you should provide one example of positive trade.
c) Explain the design of the Experimental Market proposed by Lynch et al (1986). Discuss
whether the experiment confirms the Adverse Selection model depicted by Akerlof
(1970). (30%)
Lynch, M., Miller, R. M., Plott, C. R., & Porter, R. (1986). Product quality, consumer
information, and ‘lemons’ in experimental markets. Empirical Approaches to Consumer
Protection Economics. Washington, DC: Federal Trade Commission, Bureau of Economics,
Akerlof, G. A. (1970). The market for lemons: Quality Uncertainty and the Market Mechanism.
The Quarterly Journal of Economics, 84(3), 488-500.
Module Learning Outcomes:
On completion of this module, students will be able to:
 demonstrate systematic knowledge and understanding of and be able to formally
define main theories and models of individual decision-making and the role of
individual risk attitude in them;
 apply these theories and models to specified individual decision-making problems;
 critically appraise and compare these models by describing their main assumptions
and limitations.

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with Home Work Stand
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Very well written and very impressed with this service!
Customer 452445, June 14th, 2022
Allows consistent with great work and following the instructions. Thank you for all your hard work!
Customer 452445, December 14th, 2021
Human Resources Management (HRM)
Great explanation and answer
Customer 452445, October 30th, 2021
Medical Sciences (Anatomy, Physiology, Pharmacology etc.)
Excellent job! The writer followed the directions perfectly and completed the assignment.
Customer 452445, December 24th, 2021
Criminal law
Great experience with this writer, my paper is always ready before my deadline and done professionally.
Customer 452445, January 28th, 2022
Social Sciences
The formatting was not okay but the paper was great.
Customer 452445, November 2nd, 2021
Business Studies
Needed a little editing. Anyway, thank you.
Customer 452445, October 31st, 2021
Health Care
Very well written and done earlier than scheduled. Thank you!
Customer 452445, January 12th, 2022
Classic English Literature
Wonderful writer. Pay attention to detail. Does not plagiarize. Always completes work on time!
Customer 452445, March 3rd, 2022
Classic English Literature
Great work and delivered on time. thank you.
Customer 452445, October 30th, 2021
Human Resources Management (HRM)
I am very pleased with your work and how it was completed in a timely manner. I will be requesting this writer for future assignments. Excellent work!
Customer 452445, June 10th, 2022
Helped me beat the deadline. Am grateful.
Customer 452445, November 6th, 2021
Customer reviews in total
Current satisfaction rate
3 pages
Average paper length
Customers referred by a friend
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat

Order your essay today and save 15% with the discount code ESSAYHELP