You have a log utility, U = In(W), where W is your wealth. Currently, you own $1,000. You are given the chance to receive a payment of $918 with a probability of 56%. Given the Expected Utility Theory, how much certainty payment would make you indifferent between taking a chance and taking the certainty payment? Enter a number with two decimal points. Answer the question in dollar amount, i.e., if the answer is $20, enter 20.00. (Note: whenever the calculation involves log and exponential operations, it is wise to keep more decimals in your intermediary steps so that your final two-decimal answer is accurate.)
You have a log utility, U = In(W), where W is your wealth. Currently, you own $1,000. You are given the chance to receive a payment of $918 with a probability of 56%. Given the Expected Utility Theory, how much certainty payment would make you indifferent between taking a chance and taking the certainty payment? Enter a number with two decimal points. Answer the question in dollar amount, i.e., if the answer is $20, enter 20.00. (Note: whenever the calculation involves log and exponential operations, it is wise to keep more decimals in your intermediary steps so that your final two-decimal answer is accurate.)
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.7P
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![Question 8
You have a log utility, U = ln(W), where W is your wealth. Currently, you own $1,000. You are given the chance to receive a
payment of $918 with a probability of 56%. Given the Expected Utility Theory, how much certainty payment would make you
indifferent between taking a chance and taking the certainty payment? Enter a number with two decimal points. Answer the
question in dollar amount, i.e., if the answer is $20, enter 20.00. (Note: whenever the calculation involves log and exponential
operations, it is wise to keep more decimals in your intermediary steps so that your final two-decimal answer is accurate.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcd5b586d-f4ef-4f0d-b1ef-672140c4e739%2F379953be-1961-41c4-af1b-32e1390fd7f0%2Fhcy1fg_processed.png&w=3840&q=75)
Transcribed Image Text:Question 8
You have a log utility, U = ln(W), where W is your wealth. Currently, you own $1,000. You are given the chance to receive a
payment of $918 with a probability of 56%. Given the Expected Utility Theory, how much certainty payment would make you
indifferent between taking a chance and taking the certainty payment? Enter a number with two decimal points. Answer the
question in dollar amount, i.e., if the answer is $20, enter 20.00. (Note: whenever the calculation involves log and exponential
operations, it is wise to keep more decimals in your intermediary steps so that your final two-decimal answer is accurate.)
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