Suppose that Mike, with utility function, u(x) = / <+5000, is offered a gamble where a coin is Flipped twice, and if the coin comes up heads bo imes (probability - .25), he gets $40,000. Would ne prefer this gamble or $7,500 for sure? What i his Certainty Equivalent?
Q: Suppose that my utilit function is (w) = w2. %3D (a) fI played one round of the St. Petersburg…
A:
Q: Suppose that an individual is just willing to accept a gamble to win or lose $1000 if the…
A: Probability of winning = 0.6 probability of lose = 1- probability of winning = 1-0.6 = 0.4 Amount =…
Q: 3. Please drive the relative absolute risk aversion from three utility function: U(c) I(e) – 0.6…
A: Using the formulas of relative risk and absolute risk aversion we can find them as..
Q: A decision maker is risk averse with current wealth equal to $90,000 and the utility functionu = w2.…
A: Wealth = $90,000 Utility Function - w1/2 Probability of accident = 0.2 Damage due to accident =…
Q: Jane loves risk; her Bernoulli utility function is given by u(w) = w². She participates in a ottery…
A: Given information: Jane is a risk lover and its utility function is given below: u = w2 where 'w' is…
Q: Jan wealth W = 100, has a utility function with respect to wealth of U = .5W^(2) , and faces a…
A: Given: U=0.5W^(2)
Q: A person has an expected utility function of the form u(w) = w0.5 . He initially has wealth of $4.…
A: In economics, utility refers to the level of satisfaction that a consumer gets from the consumption…
Q: Questions 18 through 20 refer to the following information: Shawn's consumption is subject to risk.…
A: Expected utility (EU) is a very useful concept used in game theory, finance and economics. It is…
Q: An individual has a utility function U = W¾, where W is her total wealth. She has one safe asset…
A: In economics, some decisions have risk related to future outcome. Risk means the person is not sure…
Q: PLS ANS 7 URGENT H = ($100, 0.4; $200, 0.6) K = ($120,p, $300, 1- p) 6. EV(H) =EV(K) What…
A: Given: Prospect H = ($100, 0.4; $200, 0.6) K = ($120,p, $300, 1-p) Carol utility wealth function-…
Q: Assuming you are risk neutral, first answer the following two questions about your preferences:…
A: Offer is receiving 2,500 certain 50% chance to getting 5000
Q: Consider Ms Ayse who has an apartment in Istanbul. Ms Ayse thinks the probability of an earthquake…
A: Equilibrium is established where expected utility is equal to the utility which is left over after…
Q: (13) Consider a person with the following value function under prospect theory: when z 20 v(2) -…
A: We are going to use Prospect theory to answer this question.
Q: 2. Suppose that a farmer usually makes profit of $120,000 per year. Let's say that there is a 2%…
A: Note: Since more than three subparts are present in the question, due to Bartleby policy we will…
Q: An art dealer owns a painting worth $1,600,000, and this dealer has an expected utility function…
A: The highest price a person is willing to pay for insurance is the price at which a person is…
Q: An expected utility maximiser owns a car worth £60 000 and has a bank account with £20 000. The…
A: Given that; Value of car =₤ 60000 Amount in bank account =₤20000 It is given that money in the bank…
Q: Yuri owns just one ship, he calls it Previt. The ship is worth $25 million dollars. If the ship…
A: Insurance provides coverage over the risk. For claiming insurance people need to pay the premium and…
Q: ₂0.5 Wilfred's expected utility function is px0.5 + (1 − p)x2.5, where p is the probability that he…
A:
Q: A gamble based on a fair coin toss which pays $6.65 if the coin lands heads and $9.85 if the coin…
A: the utility function estimates the government assistance or fulfillment of a customer as a function…
Q: 1) Dan is an expected utility maximizer with a utility function over wealth given by : u(w) = 2√w…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: In the final round of a TV game show, contestantshave a chance to increase their current winnings…
A: Since there is a 50 percent chance to win, the player should play the game. Because there is a 50…
Q: A lottery system has balls numbered 1 to 65 and randomly selects 6 of the lottery balls. There is…
A: balls numbered 1 to 65 randomly selects 6 of the lottery balls one prize of $ 10,000,000.00
Q: A decision maker has a vNM utility function over money of u(x) = x². This decision maker is: O Risk…
A: u(x)=x2 Let us take different values of X x x2 Mu of inco 100 1000 - 200 4000 3000 300…
Q: Suppose an individual is considering an investment in which there are exactly three possible…
A: There are three possible outcomes, i.e., A, B, and C Probability of occurring outcome A, i.e., P(A)…
Q: Clancy has $4800. He plans to bet on a boxing match between Sullivan and Flanagan. He finds that he…
A: The satisfaction gained by an individual when he/she consumes a good or avails a service is referred…
Q: 10. BB has an endowment (E) which she can invest. With probability p, the investment works out well…
A: Investable amount = E Probability of return = p Probability of loss = (1 -p ) Return on Investment…
Q: Anne has $138.40 and is thinking about buying a lottery ticket. The lottery pays $4.00 with…
A: Given the money that Anne has = $138.40 When the probability is 0.20 then lottery pays = $4 When the…
Q: You have utility U=VC and $100. Stacy holds a gun to your head and says you must accept a gamble -…
A: Expected utility is an economic term that expresses the utility that a business or the whole…
Q: a tern utility function of the form u(w) = Vw. What would the ndividual be willing to pay for a…
A: As it is given lottery pay =$1,000,000 probability =0.0015
Q: Suppose that my utility function is u(w) = w0.8. (a) If I played one round of the St. Petersburg…
A: St. Petersburg lottery refers to a gamble where a fair coin is tossed until the first tail appears.…
Q: Givenu(x)=x0.5 Lottery A Probability 0.50 0.25 0.25 Outcome 64 16 0 For automatic grading, give…
A: Givenu(x)=x0.5 Lottery A Probability 0.50 0.25 0.25 Outcome 64 16 0
Q: Sadija has a concave utility function of U(W) = In(W). She has inherited a ring from a relative, but…
A: Part a: ln (W) = 1/3 ln(6000) + 2/3ln(3000) ln(W) = 8.69951474821(1/3) + 8.00636756765(2/3) ln(W) =…
Q: An individual is offered the following choice. Invest in a project that pays £900 with probability…
A: The expected payoff of the choice is the weightage average of all possible payoffs using the…
Q: 4) (a) Your utility function is U- M¹/2 and your initial wealth is 36. Will you accept a gamble in…
A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Assuming you are rsk neutral, frst answer the following two questions about your preferences:…
A: Risk neutral - An investor will be called risk neutral when given the same payoff of two events he…
Q: 3)) Consider two investments X and Y, where X pays $O and $10 with equal probability and Y ays O…
A: utility function is an important concept that measures preferences over a set of goods and services.…
Q: Larissa experiences a diminishing marginal utility of income. Because of this we know that Larissa's…
A: Law of diminishing marginal utility is based on an individual's satisfaction gained from consuming…
Q: Suppose you have an exponential utility function given by U(x) =1 - exp(-x/R) where, for you, R =…
A: The quantity of assets that makes a person hesitant to gamble/invest or refrain from participating…
Q: 6) For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35.…
A: The probability of different alternatives s1, s2 and s3 are P(s1)=0.15, P(s2 )=0.50 P(s3)=0.35.
Q: = w. An individual's preferences can be expressed by the utility function U (w) Knowing that the…
A: Given:U(w)=w0.5Now,There is a chance of 70.72% to win $10 and 29.28% to win $0
Q: Ș100,0 includ udes a ca OT A driver S wealth $20,000. To install a car alarm costs the driver…
A: Von Neumann-Morgenstern utility function shows the utility experienced by the individual in…
Q: An individual has the following utility function u(w)=2w05 +10 using the expected utility, order the…
A: The expected utility mainly refers to the expected utility which involves the expected or the…
Q: An individual is o ered a choice of either $50 or a lottery which may result in $0 and $100, each…
A: Given Utility function, u(w) = 5 + 2w Probability = 12 Now find the Utility in the case of $50. = 5…
Q: Risky Prospect K is defined as: K = ($5, 0.30 ; $11,0.70) If my utility of wealth function is given…
A: Computation of expected utility of the prospect :- Expected utility = (0.30 x 5^0.6) + (0.70 x…
Q: David is an expected-utility maximizer that likes to drive fast (and reckless at times), so his…
A: An expected utility maximiser is a theoretical agent that evaluates its acts, calculates their…
Q: Suppose that the consumer is asked to contemplate a gamble with a probability of 60% of winning…
A: The expected income is the sum of income multiplied by its corresponding probability. The expected…
Q: Johnny is "paid" by his parents $2o if he gets a grade A, $10 if he gets a grade B, whereas he has…
A: In economics, expected value refers to the predicted value of a variable. The expected value is…
Step by step
Solved in 2 steps with 1 images
- 1. A woman with current wealth X has the opportunity to bet an amount on the o ccurrence of an event that she knows will occur with probability P. If she wager s W, she will received 2W, if the event occur and if it does not. Assume that t he Bernoulli utility function takes the form u(x) = -e-TX with r> 0. How much should she wager? Does her utility function exhibit CARA, DARA, IARA?Becky is deciding whether to purchase an insurance for her home againtst burglary. the payoff for her is shown as follow: Net worth of her Net worth of her home: $ 20000 burglary(10%) Net worth of her Net worth of her home: $50000 burglary (90%) The insueance would cover all the loss from burlary and the insurance fee is $8000. Her utility funtion is given as u=w ^0.3 Should Beck purchase the insurance Explain.Johnny is "paid" by his parents $2o if he gets a grade A, $10 if he gets a grade B, whereas he has to pay his parents back $5 if he gets a grade other than A or B. On average 20% of the grades he gets are A, and 30% are grades B. What is the expected value of what he "earns" per grade ? What is the expected value of what he "earns" at school weekly if on average he gets five grades a week ? How long should Jim save until he collects enough money to buy a pair of brand new Hi-Fi headphones that cost $225?
- According to the Intern al Revenue Service, the mean tax refund for the year 2014 was $2800 Assu me the stan dard devlation I6 $450 an d that the amounts 1etunded follow a normal probability distribution. a. What percont of the refunde aro more th an $3,100? (Round the Intermediate velues to 2 decimal places. Round your answer to 2 decimal places) Percert 0.25 % b. What percent of the refun ds are more th an $3,100 but less th an $3.500? (Round the intermediete values to 2 dec imal places Round your ans wer to 2 decimal places) Peroert c. What percent of the retun ds are more th an $2,250 but less than $3.500? (Round the inter mediate val ues to 2 decimal places Round your answer to 2 decimal places) PeroartA lottery has a grand prize of $1,000,000, 2 runner-up prizes of $100,000 each, 6 third-place prizes of $10,000 each, and 19 consolation prizes of $1,000 each. If a 4 million tickets are sold for $1 each, and the probability of any ticket winning is the same as that of any other winning, find the expected return on a $1 ticket. (Round your answer to 2 decimal places.Suppose Grace and Lisa are to go to dinner. Lisa is visiting Grace from outof town, and they are to meet at a local restaurant. When Lisa lived in town,they had two favorite restaurants: Bel Loc Diner and the Corner Stable. Ofcourse, Lisa’s information is out of date, but Grace knows which is betterthese days. Assume that the probability that the Bel Loc Diner is better isp > 1/2 and the probability that the Corner Stable is better is 1 - p. Naturedetermines which restaurant Grace thinks is better. Grace then sends amessage to Lisa, either “Let’s go to the Bel Loc Diner,” “Let’s go to theCorner Stable,” or “I don’t know [which is better].” Lisa receives the message, and then Grace and Lisa simultaneously decide which restaurant to go to. Payoffs are such that Grace and Lisa want to go to the same restaurant, but they prefer it to be the one that Grace thinks is better. More specifically, if, in fact, the Bel Loc Diner is better, then the payoffs from theiractions are as shown in the…
- In the final round of a TV game show, contestantshave a chance to increase their current winnings of$1 million to $2 million. If they are wrong, theirprize is decreased to $500,000. A contestant thinkshis guess will be right 50% of the time. Should heplay? What is the lowest probability of a correctguess that would make playing profitable?Hello can any one help with this Economics question: A contractor spends Dollar 3,000 to prepare for a bid on a construction project which, after deducting manufacturing expenses and the cost of bidding, will yield a profit of dollar 25,000 if the bid is won. If the chance of winning the bid is ten per cent, compute his expected profit and state the likely decision on whether to bid or not to bid?The promoter of a football game is concerned that it will rain. She has the option of spending $14,040 on insurance that will pay $39,000 if it rains. She estimates that the revenue from the game will be $65,040 if it does not rain and $30,040 if it does rain. What must the chance of rain be if buying the policy has the same expected return as not buying it? Write expressions showing the expected returns if the promoter does and does not purchase the insurance, using p to represent the probability of rain. Without insurance, E(return) = With insurance, E(return) = The chance of rain must be _%.
- . If you examine the decision tree in Figure 9.12 (orany other decision trees from PrecisionTree), you willsee two numbers (in blue font) to the right of each endnode. The bottom number is the combined monetaryvalue from following the corresponding path throughthe tree. The top number is the probability that thispath will be followed, given that the best strategy isused. With this in mind, explain (1) how the positiveprobabilities following the end nodes are calculated,(2) why some of the probabilities following the endnodes are 0, and (3) why the sum of the probabilitiesfollowing the end nodes is necessarily 1.You and a coworker are assigned a team project on which your likelihood or a promotion will be decidedon. It is now the night before the project is due and neither has yet to start it. You both want toreceive a promotion next year, but you both also want to go to your company’s holiday party that night.Each of you wants to maximize his or her own happiness (likelihood of a promotion and mingling withyour colleagues “on the company’s dime”). If you both work, you deliver an outstanding presentation.If you both go to the party, your presentation is mediocre. If one parties and the other works, yourpresentation is above average. Partying increases happiness by 25 units. Working on the project addszero units to happiness. Happiness is also affected by your chance of a promotion, which is depends on howgood your project is. An outstanding presentation gives 40 units of happiness to each of you; an aboveaverage presentation gives 30 units of happiness; a mediocre presentation gives 10 units…If probability of the student attend the first lecture is 0.55, the probability that he attend the second lecture is 0.40, and the probability he attend both is 0.28. Find probability that he not attend first lecture or not attend the second one: O.72 O.36 O.95 O.27