You have $105. Your utility function is v(c) = sqrt(c). A bag contains three coins: a 2- headed coin, a 2-tailed coin, and a normal, fair coin. A coin is taken at random and you can bet on the outcome of a flip. If you are correct you will win 21 dollars, if you are wrong you will lose 51 dollars. A) Without doing any calculations, explain why you would not take this bet. B) You are given the opportunity to observe a sample of size 1 (so, one flip of the coin) for an up-front fee of $5. After observing the result you may, if you choose, bet as above. Would you pay the fee and place a bet?

MATLAB: An Introduction with Applications
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ISBN:9781119256830
Author:Amos Gilat
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Chapter1: Starting With Matlab
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C) What if the fee in part B) was $10 instead
of $5?
D) Using the above, give an interval that
contains the value to you of observing a
sample of size 1.
E) Would someone who is more risk-averse
be willing to pay more for the information?
Explain.
Transcribed Image Text:C) What if the fee in part B) was $10 instead of $5? D) Using the above, give an interval that contains the value to you of observing a sample of size 1. E) Would someone who is more risk-averse be willing to pay more for the information? Explain.
You have $105. Your utility function is v(c) =
sqrt(c). A bag contains three coins: a 2-
headed coin, a 2-tailed coin, and a normal,
fair coin. A coin is taken at random and you
can bet on the outcome of a flip. If you are
correct you will win 21 dollars, if you are
wrong you will lose 51 dollars.
A) Without doing any calculations, explain
why you would not take this bet.
B) You are given the opportunity to observe
a sample of size 1 (so, one flip of the coin)
for an up-front fee of $5. After observing
the result you may, if you choose, bet as
above. Would you pay the fee and place a
bet?
Transcribed Image Text:You have $105. Your utility function is v(c) = sqrt(c). A bag contains three coins: a 2- headed coin, a 2-tailed coin, and a normal, fair coin. A coin is taken at random and you can bet on the outcome of a flip. If you are correct you will win 21 dollars, if you are wrong you will lose 51 dollars. A) Without doing any calculations, explain why you would not take this bet. B) You are given the opportunity to observe a sample of size 1 (so, one flip of the coin) for an up-front fee of $5. After observing the result you may, if you choose, bet as above. Would you pay the fee and place a bet?
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