the St. petersburg paradox bet deals with the flipping of the coin, that is the number of time tails comes up, the total number of flips(n), detrmine the prize suppose $2n.the probability of P(n)flips is 1,is divided by 2n and expected payoffs is the price times probability. the expected value is the sum of expected paayoff of all consquences.
a):
u(x)= (x)^2
=EU= (20)^2= 4.57
CE= -(20)* In(1-4.5)
=25.05
b) :
u(x)= (x)1/3
Eu= 2.68
CE= -(20)* In (1-2.68)
=10.37
c):
u(x)= x2
EU= 400
CE= -(20) * In(1-400)
=119.7
Question 2 Suppose that your friend has a limited budget of $20 and offers you the...
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