【ECON30001】Advanced Microeconomics

Instructions:

• There are 50 possible marks. Your percent score counts for 70% of the overall grade.

• Submit your work using Turnitin on Blackboard.

• Late submissions receive zero marks. Extensions cannot be granted by the lecturer.

If there are issues with submission, please contact [email protected] .

Keep a saved copy of your work.

• Please put your registration number as a header on each page. Do not put your name

anywhere in your answers.

• Producing a document in an acceptable format is part of the assessment. Your an

swers should be typed in an acceptable format (e.g. font size 12, at least 1.5 spaced,

every page numbered). Using Microsoft Word and saving in docx format is known

to work well with Turnitin.

• Mathematicsshould be typed. Digitally produced diagrams are encouraged. It is per

mitted to insert photographs (png format) of your own diagrams in your work. There

is no word limit. Please be aware that examiners attach importance to presentation

and the clarity with which answers are expressed.

• This assessment is an individual piece of work. Communication or collaboration

with others is not allowed. Do not share your work with others. Turnitin automati

cally detects plagiarism. Plagiarism is a serious academic offence. Be aware of the

rules regarding this issue. If you reference other published works, please do so in a

consistentstyle (e.g. Harvard style). Formal definitions may be used from the lecture

notes without referencing. Explanations must be in your own words.

Question 3 (15 marks). Professor Bob is designing an experiment to test if the Nash

bargaining solution accurately predicts the behaviour of real decision makers. He plans to

present pairs of subjects with problems such as the following:

The experiment will present a variety of different shapes of feasible payment pairs for

consideration. Professor Bob claims, correctly, that these represent bargaining problems if

the subjects are risk neutral. The editor of an economics journal, however, is very critical

of the assumption of risk neutrality. Explain how Professor Bob could adapt the experiment

to allow for risk aversion and discuss the relative costs and benefits of doing so.