Consider the following vNM utility functionu : [0, 200] → Rwhereu(z) :Consider the lotteryL = ($64, 0.5), ($36,0.5)).Find the certainty equivalent of this lottery. (Report answer up to two decimal points.)Answer:Check

The certainty equivalent is a guaranteed reward that someone would take today rather than risking a…

Answered: Consider the following vNM utility…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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You have a net worth of $901395 and a utility function given by u(w) = w0.5. If your house %3! catches fire, a 3% likelihood of occurring, you expect it to be total loss and it was recently assessed at $792999. What is the risk premium ($) you'd be willing to pay for full coverage against this fire risk? Hints: Compute the certainty equivalent (CEQ) as you did in Comm 220 and recall that the risk premia is the amount you'd be willing to pay over the expected loss Answer:
Find the attached file.
Suppose you have an exponential utility function given by U(x) =1- exp(-x/R) where, for you, R = 1000. Further, suppose you have an investment with a 50/50 chance of returning either 0 or 2000 dollars. Note U(0) = 0 and U(2000) = 0.865, so the utility of the lottery is 0.432. What is the certain equivalent of that investment?
In your answers, label all intercepts, coordinates, slopes, and axes. 1. For the utility function U(x1,X2) = x94x9.6, calculate EV, CV and ACS for an increase in Pi from $1 to $2. Assume p2 = 1, and m = 100.
Consider a consumer who can borrow or lend freely at an interest rate of 100% per period of time (think of the period as being, say, 30 years, a bit like with a mortgage). So r = 1.0, or 100%. The consumer's two-period utility function is: U = In(ct) + (1/2)In(Ct+1) The consumer earn Y=100 each period, so Y₁=100 and Yt+1 also equals 100. If this consumer is behaving optimally, trying to maximize her lifetime utility subject to the IBC, what's her consumption in period t?
Consider the lottery that assigns a probability T of obtaining a level of consumption CH and a probability 1-T an individual facing such a lottery with utility function u(c) that has the properties that more is better (that is, a strictly positive marginal utility of consumption at all levels of c) and diminishing marginal utility of consumption, u"(c) CL. Consider du(c) for the first derivative of the utility function with respect to dc du(c) du' (c) consumption and u"(c) (which is also the derivative of the first derivative of the utility function). to be the second derivative of the utility function dc dc2 1. Provide a definition for the certainty equivalent level of consumption for the simple lottery described above.
A pirate is about to set sail on a 2-period journey (trip). He has 100 bags of barley (food). He must decide how much to consume in period 1 and how much to consume in period 2: (C1, c2). He gets all the barley in period 1 and none in period 2. Unfortunately, rats will eat 50% of any barley that he saves to consume in period 2. If the pirate's utility function is U(C1, C2) = C1C2, what levels of consumption does he choose in each period? (Hint: The "price" of barley in each period can be assumed to be 1.)
Thelma is indifferent between $100 and a bet with a 0.6 chance of no return and a 0.4 chance of $200. If U(0) = 20 and U(200) = 220, then U(100) = :
answer this properly, remember (0.35x50)+(0.65x10)=£24 here
Consider the following interaction between a student and a company. The student is either serious or lazy with probabilities 1/3 and 2/3 respectively. The student knows if they are serious or not, but the company does not. Initially, the student decides whether to revise for exams or not. Revising has a cost of 1 for a serious student and 3 for a lazy one. The company observes the student's exam result (that is, whether they have made the effort to revise), and based on this, offers a salary of 3 (for a serious student) or 1 (for a lazy student). The student learns of the proposed salary and can then either accept (and earn the salary) or refuse (and earn O). They also lose the revision effort if they worked. The company's gain is equal to the student's productivity (4 if they are serious, 2 if not) minus the salary if the student accepts the offer, and O otherwise. 1. Represent the game in extensive form. 2. Show that the game has a unique perfect Bayesian Equilibrium, and provide the…
Economics Consider a potential criminal with a lawful income of $121. Potential loot from robbery is $75. The probability of being caught and imprisoned is 0.50 and a prison term for this type of crime is 0.33 units of time. Round to one decimal place in all calculations. Utility is given by: Utility = (income)1/2 A. Calculate the guaranteed utility from lawful income and the expected utility of committing the crime. What will the potential criminal do? Explain why. Would your answer change if there were an anguish cost of 1 util involved? Explain. B. Suppose all the information given above holds true, except there is no anguish cost. You are a city official who has some extra room in the budget to dedicate towards fighting crime. For the use of these resources, you can choose between either increasing the length of prison term for criminals to 0.595 units of time or investing in GIS technologies and improved policing strategies that will increase the probability of criminals being…

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Consider the following vNM utility function u : [0, 200]- R where u(z) = VE. Consider the lottery L = ($64,0.5), ($36, 0.5)) .Find the certainty equivalent of this lottery. (Report answer up to two decimal points.) Answer: