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6. p= ($20, 0.4; $40, 0.6). Use a concave utility function to graphically illustrate each of the following: a. Show that EU(p) > EU(q) where q is a mean-preserving spread of p. (Note: This will work for any lottery q. Choose one to illustrate.) b. Show that EU(r) > EU(p) where r is a non mean-preserving spread of p. (Note: This won't work for all lotteries r. Find one that does work.)

6. p= ($20, 0.4; $40, 0.6). Use a concave utility function to graphically illustrate each of the following: a. Show that EU(p) > EU(q) where q is a mean-preserving spread of p. (Note: This will work for any lottery q. Choose one to illustrate.) b. Show that EU(r) > EU(p) where r is a non mean-preserving spread of p. (Note: This won't work for all lotteries r. Find one that does work.)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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6. p= ($20, 0.4; $40, 0.6). Use a concave utility function to graphically illustrate each of the following: a. Show that EU(p) > EU(q) where q is a mean-preserving spread of p. (Note: This will work for any lottery q. Choose one to illustrate.) b. Show that EU(r) > EU(p) where r is a non mean-preserving spread of p. (Note: This won't work for all lotteries r. Find one that does work.)
Transcribed Image Text:6. p= ($20, 0.4; $40, 0.6). Use a concave utility function to graphically illustrate each of the following: a. Show that EU(p) > EU(q) where q is a mean-preserving spread of p. (Note: This will work for any lottery q. Choose one to illustrate.) b. Show that EU(r) > EU(p) where r is a non mean-preserving spread of p. (Note: This won't work for all lotteries r. Find one that does work.)
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