3. A decision maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a 70% chance of a payoff of $80, and a guaranteed payoff of $65. a. If the decision makers utility function is U = 1/2 what is the risk premium associated with this choice? b. If the decision makers utility function is U = | + 500, what is the risk premium associated with this choice? Please %3D
3. A decision maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a 70% chance of a payoff of $80, and a guaranteed payoff of $65. a. If the decision makers utility function is U = 1/2 what is the risk premium associated with this choice? b. If the decision makers utility function is U = | + 500, what is the risk premium associated with this choice? Please %3D
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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100%
![3. A decision maker is faced with a choice
between a lottery with a 30% chance of a
payoff of $30 and a 70% chance of a payoff of
$80, and a guaranteed payoff of $65. a. If the
decision makers utility function is U = 1/2
what is the risk premium associated with this
choice? b. If the decision makers utility
function is U = | + 500, what is the risk
premium associated with this choice? Please
make sure you answers/hand writing are clear
and easy to read
%3D](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4989fb34-288b-441a-9bd5-06b52652a436%2Ff3d2c5cb-7203-4a88-98ef-28f41cd48042%2Fpeuogl_processed.png&w=3840&q=75)
Transcribed Image Text:3. A decision maker is faced with a choice
between a lottery with a 30% chance of a
payoff of $30 and a 70% chance of a payoff of
$80, and a guaranteed payoff of $65. a. If the
decision makers utility function is U = 1/2
what is the risk premium associated with this
choice? b. If the decision makers utility
function is U = | + 500, what is the risk
premium associated with this choice? Please
make sure you answers/hand writing are clear
and easy to read
%3D
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