2. Consider two lotteries, A and B. With lottery A, there is a 11% chance that you receive a payoff of S10, 10% chance that you receive $100,9, 28% chance that you receive S1 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 S1, 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 ris! loving?

2. Consider two lotteries, A and B. With lottery A, there is a 11% chance that you receive a payoff of S10, 10% chance that you receive $100,9, 28% chance that you receive S1 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 S1, 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 ris! 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

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