Sadija has a concave utility function of U(W) = In(W). She has inherited a ring from a relative, but she is unsure about its value. She believes that it is worth £6,000 with a probability of 1/3 and £3,000 with a probability of 2/3. a. Ahmed would like to buy the ring from her. Which price would he need to offer for Sadija' utility to remain unchanged after the sale? b. In fact, Ahmed offers £4,000 for the ring. What can you infer about Ahmed?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
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Chapter1: Making Economics Decisions
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Sadija has a concave utility function of U(W) = In(W). She
has inherited a ring from a relative, but she is unsure about its value.
She believes that it is worth £6,000 with a probability of 1/3 and £3,000
with a probability of 2/3.
a. Ahmed would like to buy the ring from her. Which price would he
need to offer for Sadija' utility to remain unchanged after the
sale?
b. In fact, Ahmed offers £4,000 for the ring. What can you infer
about Ahmed?
Transcribed Image Text:Sadija has a concave utility function of U(W) = In(W). She has inherited a ring from a relative, but she is unsure about its value. She believes that it is worth £6,000 with a probability of 1/3 and £3,000 with a probability of 2/3. a. Ahmed would like to buy the ring from her. Which price would he need to offer for Sadija' utility to remain unchanged after the sale? b. In fact, Ahmed offers £4,000 for the ring. What can you infer about Ahmed?
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