There are risk averse expected utility maximisers who would prefer Janet's idea to Sam's idea. b. Any expected utility maximiser whose utility is a strictly increasing function of wealth would prefer Sam's idea to Janet's idea. c. Any risk averse expected utility maximiser would prefer Sam's idea to Janet's idea. d. Any expected utility maximiser would be indifferent between Janet's idea and Sam's idea.
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Question :
Janet’s attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w+4 or w−2, each equally likely. She is indifferent between buying the ticket and not buying it.
Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally.
Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally.
Which of the following statements is true?
There are risk averse expected utility maximisers who would prefer Janet's idea to Sam's idea.
Any expected utility maximiser whose utility is a strictly increasing function of wealth would prefer Sam's idea to Janet's idea.
Any risk averse expected utility maximiser would prefer Sam's idea to Janet's idea.
Any expected utility maximiser would be indifferent between Janet's idea and Sam's idea.
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- Janet's broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w + 4 or w – 2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Is this better than buying no tickets? O a. Yes, Sam's solution is preferable to buying no ticket. O b. Yes, Sam's solution is inferior to buying no ticket. O c. Both Janet and Sam would be indifferent between pooling their risk and buying no ticket. O d. There is not enough information to answer this question.Janet's broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w + 4 or w – 2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Should Sam accept the offer? O a. Yes, Sam should accept the offer. O b. No, Sam should reject the offer. O c. Sam would be indifferent between accepting an rejecting the offer. O d. There is not enough information to determine if Sam should accept or reject the offer.Janet's broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w + 4 or w – 2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Which of the following statements is true? O a. There are risk averse expected utility maximisers who would prefer Janet's idea to Sam's idea. O b. Any expected utility maximiser whose utility is a strictly increasing function of wealth would prefer Sam's idea to Janet's idea. O c. Any risk averse expected utility maximiser would prefer Sam's idea to Janet's idea. O…
- Janet’s broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth ?w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either ?+4w+4 or ?−2w−2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Should Sam accept the offer? a. Yes, Sam should accept the offer. b. No, Sam should reject the offer. c. Sam would be indifferent between accepting an rejecting the offer. d. There is not enough information to determine if Sam should accept or reject the offer.Janet’s broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth ?w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w+4 or w−2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Which of the following statements is true? a. There are risk averse expected utility maximisers who would prefer Janet's idea to Sam's idea. b. Any expected utility maximiser whose utility is a strictly increasing function of wealth would prefer Sam's idea to Janet's idea. c. Any risk averse expected utility maximiser would prefer Sam's idea to Janet's idea.…Janet’s broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth ?w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w+4 or w−2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Is this better than buying no tickets? a. Yes, Sam's solution is preferable to buying no ticket. b. Yes, Sam's solution is inferior to buying no ticket. c. Both Janet and Sam would be indifferent between pooling their risk and buying no ticket. d. There is not enough information to answer this question.
- Jamal has a utility function U = W1/2, where W is his wealth in millions of dollars and U is the utility he obtains from that wealth. In the final stage of a game show, the host offers Jamal a choice between (A) $4 million for sure, or (B) a gamble that pays $1 million with probability 0.6 and $9 million with probability 0.4. (1) Does A or B offer Jamal a higher expected utility? Explain your reasoning with calculations. (2) Should Jamal pick A or B? Why? I would like help with the unanswered last parts of the questions.# 4 Consider an individual with a utility function of the form u(w) = √w. The individual has an initial wealth of $4. He has two investments options available to him. He can eitffer keep his wealth in an interest-free account or he can take part in a particularly generous lottery that provides $12 with probability of 1/2 and $0 with probability 1/2. Assume that this person does not have to incur a cost if he decides to take part in the lottery. (a) Will this individual participate in the lottery? (b) Calculate this individual's certainty equivalent associated with the lottery. What is his risk premium?Johnny owns a house that is worth $100,000. There is a O.1% chance that the house will be completely destroyed by fire, leaving Johnny with $0. Johnny's utility function is u(x) = vx, where x represents final wealth. Assuming that Johnny has no other wealth, what's the maximum amount that he would be willing to pay for an insurance policy that completely replaces his house if destroyed by fire? Make sure to answer with the dollar sign and then the number, i.e. $532.17. Be accurate up to the second decimal. You should not need to round. Hint: The hundredths place should be 0. Enter your answer here
- The following table shows the relationship between your wealth (in thousands of dollars) and your utility: Wealth Utility. 15.0 10 23.0 15 30.0 20 36.0 25 41.0 30 46.0 35 50.0 You can invest in asset A, which offers a riskless payoff of $15,000 or in asset B, which pays $5,000 with 40% probability and $25,000 with 60% probaility. Which investment do you choose? A. B, because its expected utility of 31.6 is greater than the utility of A. O B. A, because it is riskless. OC. A, because its utility is greater than the expected utility of B, which is 28.4. O D. B, because its expected utility of 30.6 is greater than the utility of A.The Anderson family lives in the Arizona wilderness. Their property is at risk for being destroyed by a forest fire. It is estimated that each year the Anderson face a 5 percent probability of a $500,000 loss. The Anderson family has a utility function of U = W 0.7, where W is wealth and measured in dollars. Suppose their current wealth is $1 million. What is the family's expected loss from fire? What is the Anderson family's expected utility? What is the maximum value the Andersons will pay for insurance to completely protect their home? What is the risk premium?Question 3: Jane has utility function over her net income U(Y)=Y2 a. What are Jane's preferences towards risk? Is she risk averse, risk neutral or risk loving? [Briefly explain your answer] b. Jane drives to work every day and she spends a lot of money on parking meters. She is considering of cheating and not paying for the parking. However, she knows that there is a 1/4 probability of being caught on a given day if she cheats, and that the cost of the ticket is $36. Her daily income is $100. What is the maximum amount of she will be willing to pay for one day parking? c. Paul also faces the same dilemma every single day. However, he has a utility function U(Y)-Y. His daily income is also $100. What is Paul's preference towards risk? Is he risk averse, risk neutral or risk loving? d. If the price of one day parking is $9.25, will Paul cheat or pay the parking meter? Will Jane cheat or pay the parking meter?