Uncertainty  The Utility function is U = W1/3 Flood occurs with Probabilities=1/25. The Value of a house is $450,000 if no flood. After a flood, the value is $50,000. Cost of insurance is 10 cents per dollar. a. Calculate EU  b. Calculate EV  c. Calculate CE

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Risk and Uncertainty

Uncertainty refers to a situation when there is one possible outcome of a decision but where the probability of occurrence of each particular outcome is not known or cannot be estimated.