Suppose that there is a risky bet that promises a 50-50 chance of winning or losing $1000 for someone with a starting income of $59000. The certainty equivalence of this risky bet refers to the certain income that provides the same utility as does this risky bet (in expectation). Calculate the certainty equivalence of this risky bet respectively for the following utility functions: a. U (1)= √I 1 b. U (n)=- =-1 C. U (I) = In(1) Round all answers to 3 decimal places.

Suppose that there is a risky bet that promises a 50-50 chance of winning or losing $1000 for someone with a starting income of $59000. The certainty equivalence of this risky bet refers to the certain income that provides the same utility as does this risky bet (in expectation). Calculate the certainty equivalence of this risky bet respectively for the following utility functions: a. U (1)= √I 1 b. U (n)=- =-1 C. U (I) = In(1) Round all answers to 3 decimal places.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.3P

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