Answered: Setup from question 1: Janet’s broad…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Setup from question 1:

Janet’s broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w+4 or w−2, each equally likely. She is indifferent between buying the ticket and not buying it.

Setup from question 2:

Consider the setup from Question 1. 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.

QUESTION 3
Answer saved Marked out of 1.00 P Flag question
Consider the setup from Question 1 and 2. Sam has another idea: They buy two tickets (that have independent outcomes)
and share the costs and proceeds equally.
Is this better than buying no tickets?
Оа.
Yes, Sam's solution is preferable to buying no ticket.
O b. Yes, Sam's solution is inferior to buying no ticket.
С.
Both Janet and Sam would be indifferent between pooling their risk and buying no ticket.
O d. There is not enough information to answer this question.
Clear my choice

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