McCall Modification

[jbendelac]

Hello, I'm working on the McCall problem on the homework and am having difficulties. I attempted to set my wage values to the wages we defined in problem 3, while setting my phi values to the probability matrix we created in problem 3. My solution does not make sense with this approach, so I was wondering why this does not work and if you could give a hint for how to tackle this problem. Thanks!

[jmbejara]

The probability matrix is defined with a specific state-space in mind. You need to use the state space (wage values) associated with the probability matrix. So, don't use the wage values from the McCall problem in class. Use the ones defined with the Markov process defined in problem 3.