The shape of your utility function implies that you are a risk-averse v individual, and, therefore, you would not accept the wager becausev the difference between A and C.the difference in utility between B and A isless thanWhich of the following best explain why the pain of losing $2,000 exceeds the pleasure of winning $2,000 for risk-averse people? Check all that apply.The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.O The utility function of a risk-averse person exhibits the law of diminishing marginal utility.Risk-averse people are relatively poor and cannot afford to lose any money.O The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar. UTIITY (Units of utility)10Suppose your friend Deborah offers you the following bet: She will flip a coin and pay you $2,000 if it lands heads up and collect $2,000 from you if itlands tails up. Currently, your level of wealth is $6,000. The graph shows your utility function from wealth. Use the graph to answer the followingquestions.1009080B70A605040302010WEALTH (Thousands of dollars)

Being "risk averse" refers to a preference for avoiding or minimizing risks. A risk-averse…

Answered: accept the wager because The shape of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Are the following preferences consistent with von Neumann Morgenstern’s axioms to maximize expected utility? Explain. a. You would rather have a sure $200 to a gamble with p=0.7 chance of $200, p=0.1 chance of $50, p=0.2 chance of $300. b. You prefer the gamble of p=2/3 chance of $300 and p=1/3 chance of $50 than a sure $250 win.
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5. Understanding risk aversion Suppose your friend Juanita offers you the following bet: She will flip a coin and pay you $1,000 if it lands heads up and collect $1,000 from you if it lands tails up. Currently, your level of wealth is $3,000. The graph shows your utility function from wealth. Use the graph to answer the following questions. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 A+ C B WEALTH (Thousands of dollars)
You want to travel to Las Vegas to celebrate spring break and your "A" in your microeconomics class! You are trying to figure out if you should drive or fly. A round trip airline ticket from Riverside to Las Vegas costs $350 and flying there and back takes about 5 hours. Driving roundtrip to Las Vegas costs about $50 in gas and takes about 10 hours. Other things constant, what is the minimum amount of money that you would have to expect to make by gambling in Las Vegas to induce you as a rational individual to fly rather than drive? O $10 an hour $60 an hour O $70 an hour O $300 an hour
Roger's utility/u as a function of wealth/w is u = { ln w, w < 1600 w1/2, w >= 1600 Roger has $1000 and 3 options. 1. spend $400 to enter the game with probabilities of winning or losing: Win/(Lose) (500) 0 1000 3000 P(Win/(Lose)) 0.2 0.1 0.6 0.1 a. Show with workings which option roger would choose.
The shape of your utility function implies that you are a the difference in utility between A and Ci Cis Individual, and, therefore, you the difference between C and B. accept the wager because Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals who are risk averse? Check all that apply. Risk-averse people overestimate the probability of losing money. The utility function of a risk-averse person exhibits the law of diminishing marginal utility. The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar. The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar
2. Suppose you have no money of your own but luckily you participate in one contest. You have a utility for money as follows. U=y". You two options: Option 1: You get X liras for sure. Option 2: You get 144 liras 50 percent of the time and nothing 50 perctt of the time. a-) How much X should be in order for you to be indifferent between option 1 and option 2? Please show all your calculations b-) What is your Arrow-Pratt measure of absolute risk aversion? How does it change with y?
4.
An individual is oered a choice of either $50 or a lottery which may result in $0and $100, each with equal probability 1/2 . If the individual has a utility function u(w) = 5 + 2w, which one would they choose? If the individual has a utility function u(w) =w1/2 + 1?
Pablo follows the Delta Property for deals with prospects between -$1000 and $1000 and he prefers more money to less. His certain equivalent is $300 for a deal with a 0.8 chance at $500 and a 0.2 chance at $100. If x is measured in dollars, which following u-curves are consistent with Pablo's preferences? a) u(x) 10 – 4x/200 %3D b) u(x) = -x/200 1 - 0.25 c) u(x) = d) u(x) = 0.25 = 5-2×4/300 x/200 %3D

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