(*^ ::[paletteColors = 128; automaticGrouping; magnification = 150; currentKernel; fontset = title, inactive, noPageBreakBelow, nohscroll, preserveAspect, groupLikeTitle, center, M7, bold, L1, e8, 24, "Times"; ; fontset = subtitle, inactive, noPageBreakBelow, nohscroll, preserveAspect, groupLikeTitle, center, M7, bold, L1, e6, 18, "Times"; ; fontset = subsubtitle, inactive, noPageBreakBelow, nohscroll, preserveAspect, groupLikeTitle, center, M7, italic, L1, e6, 14, "Times"; ; fontset = section, inactive, noPageBreakBelow, nohscroll, preserveAspect, groupLikeSection, grayBox, M22, bold, L1, a20, 18, "Times"; ; fontset = subsection, inactive, noPageBreakBelow, nohscroll, preserveAspect, groupLikeSection, blackBox, M19, bold, L1, a15, 14, "Times"; ; fontset = subsubsection, inactive, noPageBreakBelow, nohscroll, preserveAspect, groupLikeSection, whiteBox, M18, bold, L1, a12, 12, "Times"; ; fontset = text, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12; fontset = smalltext, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 10, "Times"; ; fontset = input, noPageBreakBelow, nowordwrap, preserveAspect, groupLikeInput, M42, N23, bold, L1, 12, "Courier"; ; fontset = output, output, inactive, noPageBreakBelow, nowordwrap, preserveAspect, groupLikeOutput, M42, N23, L-5, 12, "Courier"; ; fontset = message, inactive, noPageBreakBelow, nowordwrap, preserveAspect, groupLikeOutput, M42, N23, L1, 12, "Courier"; ; fontset = print, inactive, noPageBreakBelow, nowordwrap, preserveAspect, groupLikeOutput, M42, N23, L1, 12, "Courier"; ; fontset = info, inactive, noPageBreakBelow, nowordwrap, preserveAspect, groupLikeOutput, M42, N23, L1, 12, "Courier"; ; fontset = postscript, PostScript, formatAsPostScript, output, inactive, noPageBreakBelow, nowordwrap, preserveAspect, groupLikeGraphics, M7, l34, w282, h287, L1, 12, "Courier"; ; fontset = name, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, italic, L1, 10, "Times"; ; fontset = header, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12; fontset = Left Header, nohscroll, cellOutline, 12; fontset = footer, inactive, nohscroll, noKeepOnOnePage, preserveAspect, center, M7, L1, 12; fontset = Left Footer, cellOutline, blackBox, 12; fontset = help, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 10, "Times"; ; fontset = clipboard, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12; fontset = completions, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12, "Courier"; ; fontset = special1, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12; fontset = special2, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12; fontset = special3, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12; fontset = special4, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12; fontset = special5, inactive, nohscroll, noKeepOnOnePage, preserveAspect, M7, L1, 12; next21StandardFontEncoding; ] :[font = title; inactive; preserveAspect; startGroup; ] Information :[font = subsubtitle; inactive; preserveAspect; ] Hal Varian January 1992 :[font = section; inactive; Cclosed; preserveAspect; startGroup; ] Hidden action :[font = text; inactive; preserveAspect; ] Let's generate the diagram in the text for the hidden-action problem. Suppose that the agent's utility function is Log[s]. The inverse of this is Exp[u]. Suppose also that the two states have probability (1/3,2/3) under action b and (2/3,1/3) under action a. Make cb=10, ca=5 and u bar=20. The diagram looks like this: ;[s] 15:0,0;116,1;122,2;148,3;154,4;230,5;231,6;259,7;260,8;269,9;274,10;276,11;280,12;285,13;293,14;325,-1; 15:1,11,8,Times,0,12,0,0,0;1,10,8,Courier,1,12,0,0,0;1,11,8,Times,0,12,0,0,0;1,10,8,Courier,1,12,0,0,0;1,11,8,Times,0,12,0,0,0;1,10,8,Courier,1,12,0,0,0;1,11,8,Times,0,12,0,0,0;1,10,8,Courier,1,12,0,0,0;1,11,8,Times,0,12,0,0,0;1,10,8,Courier,1,12,0,0,0;1,11,8,Times,0,12,0,0,0;1,10,8,Courier,1,12,0,0,0;1,11,8,Times,0,12,0,0,0;1,10,8,Courier,1,12,0,0,0;1,11,8,Times,0,12,0,0,0; :[font = input; preserveAspect; ] actionB=ContourPlot[(2/3)*u1 + (1/3)*u2 - 10, {u1,0,10},{u2,0,10}, ContourShading->False ] actionA=ContourPlot[(1/3)*u1 + (2/3)*u2 - 5, {u1,0,10},{u2,0,10}, ContourShading->False] principal=ContourPlot[(2/3)*(200-E^u1) + (1/3)(100-E^u2),{u1,.1,5}, {u2,.1,5},ContourShading->False] :[font = input; preserveAspect; endGroup; ] Show[{actionB,actionA,principal}] :[font = section; inactive; Cclosed; preserveAspect; startGroup; ] Hidden information :[font = input; preserveAspect; endGroup; endGroup; ] Finish this! ^*)