6. Expected Utility. Consider a Princeton student who feels that a "normal" year on campus is like gaining SA, compared to taking the year off, which gives utility u(woff). But she fears Princeton will renege on its promise of a normal year, and move everything online; she feels that this is like losing $L (compared to a normal on-campus year). If she expects this to happen with probability p, (a) Write out the expected utility from enrolling. (b) Write out the expected utility from taking the year off. (c) Show: if the student chooses to take the year off, and is risk-loving, it must be that L>A/p.

6. Expected Utility. Consider a Princeton student who feels that a "normal" year on campus is like gaining SA, compared to taking the year off, which gives utility u(woff). But she fears Princeton will renege on its promise of a normal year, and move everything online; she feels that this is like losing $L (compared to a normal on-campus year). If she expects this to happen with probability p, (a) Write out the expected utility from enrolling. (b) Write out the expected utility from taking the year off. (c) Show: if the student chooses to take the year off, and is risk-loving, it must be that L>A/p.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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