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(13.1) Sempronius has to choose between two lotteries X and Y. Lottery X is distributed as (4, 1: 16, ; 36, ), whereas Y is distributed as (1, ; 49, ). Which lottery will Sempronius prefer in each case below? (a) If he is an expected utility maximizer with u = v VR, where R is the result of the lottery as in the good old times of Bernoulli and Cramer. (b) If he is infinitely risk averse (or infinitely pessimistic). (c) If he is an RDEU decision maker with u = R and a function f(p) such that: 0 for 0

(13.1) Sempronius has to choose between two lotteries X and Y. Lottery X is distributed as (4, 1: 16, ; 36, ), whereas Y is distributed as (1, ; 49, ). Which lottery will Sempronius prefer in each case below? (a) If he is an expected utility maximizer with u = v VR, where R is the result of the lottery as in the good old times of Bernoulli and Cramer. (b) If he is infinitely risk averse (or infinitely pessimistic). (c) If he is an RDEU decision maker with u = R and a function f(p) such that: 0 for 0

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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(13.1) Sempronius has to choose between two lotteries X and Y. Lottery X is distributed as (4, 1: 16, ; 36, ), whereas Y is distributed as (1, ; 49, ). Which lottery will Sempronius prefer in each case below? (a) If he is an expected utility maximizer with u = v VR, where R is the result of the lottery as in the good old times of Bernoulli and Cramer. (b) If he is infinitely risk averse (or infinitely pessimistic). (c) If he is an RDEU decision maker with u = R and a function f(p) such that: 0 for 0
Transcribed Image Text:(13.1) Sempronius has to choose between two lotteries X and Y. Lottery X is distributed as (4, 1: 16, ; 36, ), whereas Y is distributed as (1, ; 49, ). Which lottery will Sempronius prefer in each case below? (a) If he is an expected utility maximizer with u = v VR, where R is the result of the lottery as in the good old times of Bernoulli and Cramer. (b) If he is infinitely risk averse (or infinitely pessimistic). (c) If he is an RDEU decision maker with u = R and a function f(p) such that: 0 for 0
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