4.Jenny is an expected utility maximiser. When offered lottery l,, she accepts it.1 1(100, 60;52(a) Suppose Jenny were asked to choose between l, and l,, where:2 1l2 = (100, 60;3신.Which lottery will Jenny prefer, and why?(b) Consider another lottery l,, where:1 1l3 = (120, 40;-2'2When asked to choose between l, and l3 Jenny prefers l3. What does thisimply about Jenny's attitude to risk? How are l, and l, related? Illustrate thetwo lotteries in a diagram with wealth on the x-axis and utility on the y-axis.

Expected Payoff= Probability of Payoff* Payoff

Jenny is an expected utility maximiser. When offered lottery l, she accepts it. 1 1, 4 = (100, 60; 5.2' (a) Suppose Jenny were asked to choose between l, and l,, where: 2 1 2 = (100,60;3'· Which lottery will Jenny prefer, and why? (b) Consider another lottery l3, where: 1 1 lz = (120,40; %3D When asked to choose between 4 and l3 Jenny prefers l3. What does this imply about Jenny's attitude to risk? How are l4 and l3 related? Illustrate the two lotteries in a diagram with wealth on the x-axis and utility on the y-axis.

Jenny is an expected utility maximiser. When offered lottery l, she accepts it. 1 1, 4 = (100, 60; 5.2' (a) Suppose Jenny were asked to choose between l, and l,, where: 2 1 2 = (100,60;3'· Which lottery will Jenny prefer, and why? (b) Consider another lottery l3, where: 1 1 lz = (120,40; %3D When asked to choose between 4 and l3 Jenny prefers l3. What does this imply about Jenny's attitude to risk? How are l4 and l3 related? Illustrate the two lotteries in a diagram with wealth on the x-axis and utility on the y-axis.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Consider a risk-neutral agent who maximizes expected utility of wealth facing a lottery with a "bad" (wealth remains the same) and a "good" (wealth increases by a small amount) outcome (both with non-zero probabilities). For this agent, O the certainty equivalent will be zero, but the risk premium will be greater than zero. O the certainty equivalent will be greater than zero, but the risk premium will be zero. O the certainty equivalent will be greater than zero, but the risk premium will be less than zero. O the certainty equivalent will be less than zero, but the risk premium will be greater than zero. O the certainty equivalent and the risk premium will both be zero. there is not enough information to make statements about the certainty equivalent and the risk premium.
Typed please and asap
P1| P2 Left Middle Right Left 4,2 3,3 1,2 Middle 3,3 5,5 2,6 Right 2,1 6,2 3,3 Consider the simultaneous move game represented by this payoff matrix. Suppose that the game is repeated for two periods and the players know that the game will end at the end of two periods. They observe the first period outcome before they move to the second period. Assume that there is no discounting, i.e. 2nd period payoffs are not discounted, or the discount factor is equal to 1. Which of the following outcomes could occur in some subgame perfect equilibrium (SPE) of this repeated game? Choose True if you think the outcome can be a SPE, otherwise choose False. a) (Left, Left) is played in both periods. b) (Right, Right) is played in both periods. c) (Middle, Middle) is played in both periods. d) (Middle, Middle) is played in the first period, followed by (Left, Left). e) (Middle, Middle) is played in the first period, followed by (Right, Right).
5 players must simultaneously choose a number from the interval [0, 9]. Let xi denote the number chosen by player i; x = (x1, . . . , x5) all the selected numbers; x−i = x\xi all the selected numbers except the one chosen by player i. If player i chooses the number xi ∈ [0, 9], while the others choose numbers x−i, then the utility of player i is given by ui(xi, x−i) = 4(9 − xi) + 2Σ5 j=1 xj. Find the Nash equilibrium of the game and the corresponding utilities. Would all players be better off if they signed a binding contract before the game, obligating them to choose the number 9?
Q5
: Suppose that Charlene has an income of $110,000 per year and that there is a 1 QUESTION in 5 (20%) chance that she will get sick in a given year. Let's suppose that the cost of the illness (in terms of lost work time and medical bills) is $80,000 which leaves her with an income of only $30,000 in that particular year. Utility UHealthy UE = UR Usick $30,000 $88,000 $94,000 $110,000 Income a) What is the actuarially fair premium for Charlene's situation? b) Continue to assume the given information. Suppose that the figure above represents Charlene's utility over various income levels. What is Charlene willing to pay for insurance? c) Continue to assume the given information. We know that Charlene would buy actuarially fair insurance but if the insurance company applied a 20% loading fee would Charlene still purchase the health insurance?
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) = :
Please answer question on screenshot (which of the folowing statements....) q1) Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally.
. If you examine the decision tree in Figure 9.12 (orany other decision trees from PrecisionTree), you willsee two numbers (in blue font) to the right of each endnode. The bottom number is the combined monetaryvalue from following the corresponding path throughthe tree. The top number is the probability that thispath will be followed, given that the best strategy isused. With this in mind, explain (1) how the positiveprobabilities following the end nodes are calculated,(2) why some of the probabilities following the endnodes are 0, and (3) why the sum of the probabilitiesfollowing the end nodes is necessarily 1.
(Ch 7) Suppose a standard normal random variable has an 80 percent chance falling in an interval (–z, z). The value of z is approximately ____ (use Appendix C-1). a. 1.45 b. 1.35 c. 1.96 d. 1.28