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Suppose Ana's current wealth is $500, and she is debating a trip to Reno. Although she doesn't have a lucky number, her most recent interest is a new game similar to roulette, in which she places money on odd every time. Suppose that there is a 50% chance that the ball will land on odd and her wealth will increase to $900, but there is also a 50% chance that the ball will land on even and her wealth will decrease to $100. The following graph shows Ana's utility curve as a function of wealth, U (W). All of the black points (plus symbols) on the graph represent various points along this curve. Note: Select a point on the graph to see its coordinates. UTILS (Utils) 100 90 80 70 60 50 40 30 20 10 0 + 0 100 200 + 300 400 500 600 700 800 900 1000 WEALTH (Dollars) If Ana takes the gamble, the expected value of her wealth is s utility from taking the gamble, you know that she must be U(W) Complete the equation with the appropriate selections. Expected Utility from Gamble Utility with Premium =U (500-P) = U (500-P) (?) . Because her utility at this level of wealth is Suppose that Ana is forced to either make the gamble or pay an insurance premium (P) to avoid the gamble and retain a wealth level of $500 - P. Given Ana's risk preferences, the maximum premium that she would be willing to pay must equate the utility levels from these two scenarios, as seen in the following equation. According to the graph of U (W) already given, the maximum premium that Ana is willing to pay is her expected

Suppose Ana's current wealth is $500, and she is debating a trip to Reno. Although she doesn't have a lucky number, her most recent interest is a new game similar to roulette, in which she places money on odd every time. Suppose that there is a 50% chance that the ball will land on odd and her wealth will increase to $900, but there is also a 50% chance that the ball will land on even and her wealth will decrease to $100. The following graph shows Ana's utility curve as a function of wealth, U (W). All of the black points (plus symbols) on the graph represent various points along this curve. Note: Select a point on the graph to see its coordinates. UTILS (Utils) 100 90 80 70 60 50 40 30 20 10 0 + 0 100 200 + 300 400 500 600 700 800 900 1000 WEALTH (Dollars) If Ana takes the gamble, the expected value of her wealth is s utility from taking the gamble, you know that she must be U(W) Complete the equation with the appropriate selections. Expected Utility from Gamble Utility with Premium =U (500-P) = U (500-P) (?) . Because her utility at this level of wealth is Suppose that Ana is forced to either make the gamble or pay an insurance premium (P) to avoid the gamble and retain a wealth level of $500 - P. Given Ana's risk preferences, the maximum premium that she would be willing to pay must equate the utility levels from these two scenarios, as seen in the following equation. According to the graph of U (W) already given, the maximum premium that Ana is willing to pay is her expected

MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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Suppose Ana's current wealth is $500, and she is debating a trip to Reno. Although she doesn't have a lucky number, her most recent interest is a new game similar to roulette, in which she places money on odd every time. Suppose that there is a 50% chance that the ball will land on odd and her wealth will increase to $900, but there is also a 50% chance that the ball will land on even and her wealth will decrease to $100. The following graph shows Ana's utility curve as a function of wealth, U (W). All of the black points (plus symbols) on the graph represent various points along this curve. Note: Select a point on the graph to see its coordinates. UTILS (Utils) 100 90 80 70 60 50 40 30 20 10 0 0 + X + If Ana takes the gamble, the expected value of her wealth is s utility from taking the gamble, you know that she must be 100 200 300 400 500 600 700 800 900 1000 WEALTH (Dollars) + Complete the equation with the appropriate selections. U(W) Expected Utility from Gamble Utility with Premium = U/ (500-P) = U (500 - P) (?) . Because her utility at this level of wealth is Suppose that Ana is forced to either make the gamble or pay an insurance premium (P) to avoid the gamble and retain a wealth level of $500-P. Given Ana's risk preferences, the maximum premium that she would be willing to pay must equate the utility levels from these two scenarios, as seen in the following equation. According to the graph of U (W) already given, the maximum premium that Ana is willing to pay is her expected
Transcribed Image Text:Suppose Ana's current wealth is $500, and she is debating a trip to Reno. Although she doesn't have a lucky number, her most recent interest is a new game similar to roulette, in which she places money on odd every time. Suppose that there is a 50% chance that the ball will land on odd and her wealth will increase to $900, but there is also a 50% chance that the ball will land on even and her wealth will decrease to $100. The following graph shows Ana's utility curve as a function of wealth, U (W). All of the black points (plus symbols) on the graph represent various points along this curve. Note: Select a point on the graph to see its coordinates. UTILS (Utils) 100 90 80 70 60 50 40 30 20 10 0 0 + X + If Ana takes the gamble, the expected value of her wealth is s utility from taking the gamble, you know that she must be 100 200 300 400 500 600 700 800 900 1000 WEALTH (Dollars) + Complete the equation with the appropriate selections. U(W) Expected Utility from Gamble Utility with Premium = U/ (500-P) = U (500 - P) (?) . Because her utility at this level of wealth is Suppose that Ana is forced to either make the gamble or pay an insurance premium (P) to avoid the gamble and retain a wealth level of $500-P. Given Ana's risk preferences, the maximum premium that she would be willing to pay must equate the utility levels from these two scenarios, as seen in the following equation. According to the graph of U (W) already given, the maximum premium that Ana is willing to pay is her expected
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