2. Consider two lotteries, A and B, With lottery A, there is a 11% chance that you receive a payoff of $10, 10% chance that you receive $100,9, 28% chance that you receive $1 1% chance that you receive $28, and 50% of receive nothing. With lottery B, there is a 1% chance that you receive a payoff of $1000, 1% chance that you receive $100, 3% chance that you rececive a payoff of $10, 45% chance that you receive a payoff of $1, and 50% chance that you receive a payoff of nothing. Further, you must pay $1 to raffle. a) Verify that these two lotteries have the same expected value but that lottery B has a bigger variance than lottery A. b) Suppose that your utility function is U = v(I + 10), where / is expected value of the lottery. Compute the expected utility of cach lottery. Which lottery has the higher expected utility? If you have this utility function, are you risk-averse, risk neutral, or risk loving? c) Suppose that your utility function is U = 1001. Compute the expected utility of each lottery. If you have this utility function, are you risk-averse, risk neutral, or risk loving? d) Suppose that your utility function is U = 10/. Compute the expected utility of each lottery. If you have this utility function, are you risk-averse, risk neutral, or risk loving?
2. Consider two lotteries, A and B, With lottery A, there is a 11% chance that you receive a payoff of $10, 10% chance that you receive $100,9, 28% chance that you receive $1 1% chance that you receive $28, and 50% of receive nothing. With lottery B, there is a 1% chance that you receive a payoff of $1000, 1% chance that you receive $100, 3% chance that you rececive a payoff of $10, 45% chance that you receive a payoff of $1, and 50% chance that you receive a payoff of nothing. Further, you must pay $1 to raffle. a) Verify that these two lotteries have the same expected value but that lottery B has a bigger variance than lottery A. b) Suppose that your utility function is U = v(I + 10), where / is expected value of the lottery. Compute the expected utility of cach lottery. Which lottery has the higher expected utility? If you have this utility function, are you risk-averse, risk neutral, or risk loving? c) Suppose that your utility function is U = 1001. Compute the expected utility of each lottery. If you have this utility function, are you risk-averse, risk neutral, or risk loving? d) Suppose that your utility function is U = 10/. Compute the expected utility of each lottery. If you have this utility function, are you risk-averse, risk neutral, or risk loving?
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
Related questions
Concept explainers
Unitary Method
The word “unitary” comes from the word “unit”, which means a single and complete entity. In this method, we find the value of a unit product from the given number of products, and then we solve for the other number of products.
Speed, Time, and Distance
Imagine you and 3 of your friends are planning to go to the playground at 6 in the evening. Your house is one mile away from the playground and one of your friends named Jim must start at 5 pm to reach the playground by walk. The other two friends are 3 miles away.
Profit and Loss
The amount earned or lost on the sale of one or more items is referred to as the profit or loss on that item.
Units and Measurements
Measurements and comparisons are the foundation of science and engineering. We, therefore, need rules that tell us how things are measured and compared. For these measurements and comparisons, we perform certain experiments, and we will need the experiments to set up the devices.
Topic Video
Question
Transcribed Image Text:2. Consider two lotteries, A and B.
With lottery A, there is a
11% chance that you receive a payoff of $10,
10% chance that you receive $100,9,
28% chance that you receive $1
1% chance that you receive $28, and
50% of receive nothing.
With lottery B, there is a
1% chance that you receive a payoff of $1000,
1% chance that you receive $100,
3% chance that you receive a payoff of $10,
45% chance that you receive a payoff of $1, and
50% chance that you receive a payoff of nothing.
Further, you must pay $1 to raffle.
a) Verify that these two lotteries have the same expected value but that lottery B has a
bigger variance than lottery A.
b) Suppose that your utility function is U = V(I + 10), where I is expected value of the
lottery. Compute the expected utility of each lottery. Which lottery has the higher
expected utility? If you have this utility function, are you risk-averse, risk neutral, or risk
loving?
c) Suppose that your utility function is U = 1001. Compute the expected utility of each
lottery. If you have this utility function, are you risk-averse, risk neutral, or risk loving?
d) Suppose that your utility function is U= 10F. Compute the expected utility of each
lottery. If you have this utility function, are you risk-averse, risk neutral, or risk loving?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, statistics and related others by exploring similar questions and additional content below.Recommended textbooks for you
MATLAB: An Introduction with Applications
Statistics
ISBN:
9781119256830
Author:
Amos Gilat
Publisher:
John Wiley & Sons Inc
Probability and Statistics for Engineering and th…
Statistics
ISBN:
9781305251809
Author:
Jay L. Devore
Publisher:
Cengage Learning
Statistics for The Behavioral Sciences (MindTap C…
Statistics
ISBN:
9781305504912
Author:
Frederick J Gravetter, Larry B. Wallnau
Publisher:
Cengage Learning
MATLAB: An Introduction with Applications
Statistics
ISBN:
9781119256830
Author:
Amos Gilat
Publisher:
John Wiley & Sons Inc
Probability and Statistics for Engineering and th…
Statistics
ISBN:
9781305251809
Author:
Jay L. Devore
Publisher:
Cengage Learning
Statistics for The Behavioral Sciences (MindTap C…
Statistics
ISBN:
9781305504912
Author:
Frederick J Gravetter, Larry B. Wallnau
Publisher:
Cengage Learning
Elementary Statistics: Picturing the World (7th E…
Statistics
ISBN:
9780134683416
Author:
Ron Larson, Betsy Farber
Publisher:
PEARSON
The Basic Practice of Statistics
Statistics
ISBN:
9781319042578
Author:
David S. Moore, William I. Notz, Michael A. Fligner
Publisher:
W. H. Freeman
Introduction to the Practice of Statistics
Statistics
ISBN:
9781319013387
Author:
David S. Moore, George P. McCabe, Bruce A. Craig
Publisher:
W. H. Freeman