Suppose that Lizzo's utility function U is given by U = wD.53 where w is wealth. Lizzo has wealth of £21,500 but faces a probability of getting ill and being left with only £11,180. She has an 0.8 probability of being well and a 0.2 probability of being il.
Suppose that Lizzo's utility function U is given by U = wD.53 where w is wealth. Lizzo has wealth of £21,500 but faces a probability of getting ill and being left with only £11,180. She has an 0.8 probability of being well and a 0.2 probability of being il.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![d) Lizzo is risk-averse.
O True
O False
e) To within two decimal places (e.g. 0.09), Lizzo's certainty equivalent is 7
f) To within two decimal places, Lizzo's risk premium is](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff7dc0e8b-a8e2-407f-bd28-392e57fa4c08%2Fa92af47f-8a98-43a3-a9d6-d68c631bdf28%2Fapcqryj_processed.png&w=3840&q=75)
Transcribed Image Text:d) Lizzo is risk-averse.
O True
O False
e) To within two decimal places (e.g. 0.09), Lizzo's certainty equivalent is 7
f) To within two decimal places, Lizzo's risk premium is
![Suppose that Lizzo's utility function U is given by U = w.53, where w is wealth. Lizzo has wealth of £21,500 but faces a probability of
getting ill and being left with only £11,180. She has an 0.8 probability of being well and a 0.2 probability of being ill.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff7dc0e8b-a8e2-407f-bd28-392e57fa4c08%2Fa92af47f-8a98-43a3-a9d6-d68c631bdf28%2Frvfgi6s_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that Lizzo's utility function U is given by U = w.53, where w is wealth. Lizzo has wealth of £21,500 but faces a probability of
getting ill and being left with only £11,180. She has an 0.8 probability of being well and a 0.2 probability of being ill.
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