Use the certainty equivalent approach to assess your utility function for wealth over a range of $100 to $20,000:Use the probability equivalent approach to assess your utility function for wealth over a range of $100 to $20,000:Plot the assessments from part a, and b on the same graph and compare them. Why do you think they differ? Can you identify any biases in your assessment process?

Use the certainty equivalent approach to assess your utility function for wealth over a range of $100 to $20,000:Use the probability equivalent approach to assess your utility function for wealth over a range of $100 to $20,000:Plot the assessments from part a, and b on the same graph and compare them. Why do you think they differ? Can you identify any biases in your assessment process?

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Question

Assess your own utility function in 3 different ways:

Use the certainty equivalent approach to assess your utility function for wealth over a range of $100 to $20,000:

U(100) =

U(20,000) =

U(1000) =

U(2500) =

U(5000) =

U(9000) =

U (15000) =

Use the probability equivalent approach to assess your utility function for wealth over a range of $100 to $20,000:

U(1500) =

U(5500) =

U(9000) =

U(14500) =

Plot the assessments from part a, and b on the same graph and compare them. Why do you think they differ? Can you identify any biases in your assessment process?

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Step 1: Use the certainty equivalent approach to assess the utility function for different amounts of wealth

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Step 2: Determine the probability p that makes the utility of the given wealth amounts equal.

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