List of
games in Chapter 4 Uncertainty Using Comlabgames 

Game
title (right click on the game to download it) 
Short
description of the experiment 

The extensive form
of a game in which a multinational is deliberating over the prospect of
acquiring a plant in new, previously unexplored territory. Having already
undertaken some study, it must choose between making a final decision now, or
deferring until more information is gathered and processed. The factory's
condition is determined before the firm takes its first decision, and it is
not revealed until after a decision has been taken. 

4.2. Product Testing 
A pharmaceutical
company which cannot market a drug unless it has passed guidelines set out by
the Federal Drug Administration. There are two tests that must be passed before
marketing is permitted. 

4.3. Filling a Vacancy 


In this experiment
subjects are asked to how much they are willing to pay for a lottery called L
when its probabilities are known. The number is called b for bid. A random number n
from a probability distribution which lies between 0 and 100 is then drawn.  If n ≤ b, then a subject pays
n in exchange for the lottery L, and receives the payoff from playing the
lottery.  If b < n, then a subject neither
pays nor receives anything. 

4.5: Insurance 
To illustrate this
point suppose that a driver begins with wealth w and faces a gamble in which she
might lose d from damage in the event of a accident which occurs with
probability p. To offset this potential loss an insurance company offers her
the opportunity to reimburse her q∈[0,d] for her loss, for a premium of qf .
Suppose the driver has an expected utility maximizer with a twice
differentiable, increasing utility function u(w) defined on her wealth w. How
much insurance should she buy? A risk neutral driver fully insures his
vehicle if the rate better than
actuarially fair but buys no insurance if it is unfacorable to him. Finally a
risk seeker does not buy any insurance sold at actuarilly fair rates, but can
be induced to buy it at rates that are favorable to him. Suppose the driver
is risk averse. If she only partially insures herself with q<d units, her
expected utility is: But we see from the top line that a
utility of u(wqf) can be obtained if insurance is actuarially fair, which
means f=p per unit, and the driver prurchases full insurance, setting q=d. It
follows that a risk averse driver would fully insure his vehicle if the
premium is actuarially fair. However if the premium was less favorable to the
driver, the discussion in the next example below demonstrates that even a
risk averse driver would not fully insure his vehicle, prefering to take on
some risk. In this case the risky asset, a partially uninsured vehicle,
offers a higher expected return than the safe full insurance alternative. In the following experiment, suppose u(w)
=exp(αw) and f and p=0.1. 

4.6: Pension fund 
Consider a worker planning retirement who
allocates w, the amount of wealth to be invested for future consumption,
between buying shares in a pension fund with a random return denoted by
π, and saving at a constant interest rate denoted by r. Alternatively we
might like to think of the proportion a pension fund allocates to bonds and
the amount allocated to stocks. Denoting the amount of his wealth deposited
in his savings account by s, the amount of wealth consumed in retirement is
then c=s(1+r)+(ws)π The worker chooses
between savings and consumption In an experiment
we normalized wealth to unity, that is w=1, let the utility function take the
function form u(c)=c^{γ} , set the interest rate r to zero and
assumed π is uniformly distributed between π and π+1 for some
real number π. 

4.7: Portfolio choice 


4.8: Allais paradox 
Subjects choose between: Choice 1: A: $300 with a 1.0 chance or B: $400 with a 0.8 chance Choice 2: C: $300 with a 0.25 chance or D: $400 with a 0.2 chance A clear majority of people choose A and D but this violates independence since C and D are 'scaleddown' versions of A and B (i.e. they are both scaled down by a factor of 0.25) 

4.9: Ellsberg paradox 
In the urn there are 90 balls: 30 of those balls are blue, the other 60 are either red or yellow. What is the task? Subjects will be asked to choose among assets that pay real money according to the color of the ball that will be drawn from the urn. Choice 1: Choice between asset a) or asset b)
Choice 2: Choice between asset a) or asset b)
Choice 3: Choice between asset a) or asset b)


Subjects are asked
to choose between the following two lotteries: Lottery B : [$10
with probability 0.1, $20 with probability 0.10, . . ., $100 with
probability 0.1]: Lottery C : [$20 with probability 0.2, $30 with
0.1, $40 with probability 0.1,. . ., $100 with
probability 0.1]: 

Subjects are asked
to choose between the following two lotteries: Lottery A : [$10 with probability 0.5 and $100 with
probability 0.5]: Lottery B : [$10
with probability 0.1, $20 with probability 0.10, . . ., $100 with probability
0.1]: 