10. Karl's utility function is U(w) where w is wealth. His initial wealth %3D w+200 300. He considers a gamble in which he could win 200 with probability p or lose 200 with probability 1- p. Karl's preferences in the face of risk are described by expected utility theory. He is indifferent between keeping his initial wealth for sure or taking the gamble if the value of p is is wo (a) 4 (b) .5 (c) .6 (d) .7 (e) .8

10. Karl's utility function is U(w) where w is wealth. His initial wealth %3D w+200 300. He considers a gamble in which he could win 200 with probability p or lose 200 with probability 1- p. Karl's preferences in the face of risk are described by expected utility theory. He is indifferent between keeping his initial wealth for sure or taking the gamble if the value of p is is wo (a) 4 (b) .5 (c) .6 (d) .7 (e) .8

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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10. Which one of the following measures may be used to measure the risk of an investment on its own? a) Expected return of the investment. b) Expected utility of the investment for an investor. c) Standard deviation of the possible outcomes of the investment. d) The Bernoullian utility function's value of a good investment outcome.
Janet's broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w + 4 or w – 2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Suppose that Janet's and Sam's utility of income is given by u(x) = In x and the initla wealth of each one of them is equal to w = 4. Which of the following statements is true? O a. Both agents prefer Sam's solutions to Janet's solution. b. Both agents prefer Janet's solutions to Sam's solution. The agents are indifferent between Janet's solutions to Sam's solution.…
2 Prove rigourously, "Constant relative risk aversion (CRRA) implies decreasing absolute risk aversion (DARA), but the converse is not necessarily true."
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9) A risk-neutral individual with current wealth w has already decided investing all his wealth in a project that has two possible net wealth outcomes wn and we (with probabilities pr and pe, respectively) where wr > w > we > 0, PrPe E (0,1), and pr + Pe = 1. Before he invests, he realises that there is a source of information that tells the individual which outcome will be realised with truth, what is the value of this information for the individual? a) pe(@ – w;), b) (Pn – Pe)w, c) Phwn + PeWe – w, d) Pr(w – wn).
Not use ai please
Suppose that Mary has a utility function U(W) W power of 0.5. Her only asset is the shares in the start-up e-com company. Next week she will learn the stock's value. She believes that it is worth $225 with the probability 1/3, $196 with the probability 1/2 and $144 with the probability 1/6. Write down the prospect and calculate the expected value and her expected utility.
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5
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