] Risk Aversion Suppose that, when an individual gets D dollars, we define their payoff to be D in order to model their level of risk-aversion. Consider a gamble that pays $1,000 with probability 0.64, and $0 with probability 0.36. What is the expected value of this gamble? E [gamble] =$ 640 I This individual would be indifferent between the gamble and receiving $ 640 would be willing to pay up to $0 with certainty, implying that they to avoid the risk associated with the gamble (meaning, they would be willing to pay up to this amount to receive the expected value of the gamble with certainty). Hint: graphing the re-scaled payoff and expected value of the gamble will really help you think through this question (see the Ch. 19 Part 2 Lecture and Practice Application 6 videos for examples of these graphs and their interpretations).

] Risk Aversion Suppose that, when an individual gets D dollars, we define their payoff to be D in order to model their level of risk-aversion. Consider a gamble that pays $1,000 with probability 0.64, and $0 with probability 0.36. What is the expected value of this gamble? E [gamble] =$ 640 I This individual would be indifferent between the gamble and receiving $ 640 would be willing to pay up to $0 with certainty, implying that they to avoid the risk associated with the gamble (meaning, they would be willing to pay up to this amount to receive the expected value of the gamble with certainty). Hint: graphing the re-scaled payoff and expected value of the gamble will really help you think through this question (see the Ch. 19 Part 2 Lecture and Practice Application 6 videos for examples of these graphs and their interpretations).

College Algebra

7th Edition

ISBN:9781305115545

Author:James Stewart, Lothar Redlin, Saleem Watson

Publisher:James Stewart, Lothar Redlin, Saleem Watson

Chapter9: Counting And Probability

Section9.3: Binomial Probability

Problem 33E: Sick leave probability that a given worker at Dyno Nutrition Will call in sick on a Monday is 004....

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