You have $10,000 cash in your savings account. A friend tells you about a great "investment" opportunity with one big catch: there is a 50% chance you will either gain $30,000 (i.e. total wealth = $40,000) or a 50% chance you will lose your entire $10,000 investment (i.e. total wealth = $0). Given a personal utility function of U(W) = w(1/3), the gain on the upside is not enough to take the investment. What would your total wealth on the upside have to be greater than to properly incentivize you to take the risk? Multiple Choice 160,000 80,000 120,000 100,000

You have $10,000 cash in your savings account. A friend tells you about a great "investment" opportunity with one big catch: there is a 50% chance you will either gain $30,000 (i.e. total wealth = $40,000) or a 50% chance you will lose your entire $10,000 investment (i.e. total wealth = $0). Given a personal utility function of U(W) = w(1/3), the gain on the upside is not enough to take the investment. What would your total wealth on the upside have to be greater than to properly incentivize you to take the risk? Multiple Choice 160,000 80,000 120,000 100,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

You have $10,000 cash in your savings account. A friend tells you about a great "investment" opportunity with one big
catch: there is a 50% chance you will either gain $30,000 (i.e. total wealth = $40,000) or a 50% chance you will lose your
entire $10,000 investment (i.e. total wealth = $0). Given a personal utility function of U(W) = w(1/3), the gain on the upside
is not enough to take the investment. What would your total wealth on the upside have to be greater than to properly
incentivize you to take the risk?
Multiple Choice
O
O
160,000
80,000
120,000
100,000

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