9) A risk-neutral individual with current wealth w has already decided investing all his wealth in a project that has two possible net wealth outcomes wn and we (with probabilities pr and pę, respectively) where wn > w > we > 0, Pr Pe E (0,1), and pr + Pe = 1. Before he invests, he realises that there is a source of information that tells the individual which outcome will be realised with truth, what is the value of this information for the individual? a ) p, (ω-ω,) b) (Pr – Pe)w, c) PhWn + Pewp – w, d) Pn(w – wn).
9) A risk-neutral individual with current wealth w has already decided investing all his wealth in a project that has two possible net wealth outcomes wn and we (with probabilities pr and pę, respectively) where wn > w > we > 0, Pr Pe E (0,1), and pr + Pe = 1. Before he invests, he realises that there is a source of information that tells the individual which outcome will be realised with truth, what is the value of this information for the individual? a ) p, (ω-ω,) b) (Pr – Pe)w, c) PhWn + Pewp – w, d) Pn(w – wn).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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