Q.No.4. If you are supposed to a 40/60 chance of gaining or losing Rs.400 and insurance that removes the risk costs Rs.150; at what level of wealth will you be indifferent relative to taking the gamble or paying the insurance? That is, what is your certainty equivalent wealth? Assuming your utility function is U(W)= In(W).

Q.No.4. If you are supposed to a 40/60 chance of gaining or losing Rs.400 and insurance that removes the risk costs Rs.150; at what level of wealth will you be indifferent relative to taking the gamble or paying the insurance? That is, what is your certainty equivalent wealth? Assuming your utility function is U(W)= In(W).

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.1P

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