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.
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.