How do you solve this mathematically?
Homework Answers
Ian will mak the investment if the expected utility of making the investment >= expected utility of not making the investment.
expected utility of making the investment = pr(success)*u(value form success) + pr(fail)*u(value from fai)l
= p*u(100) + (1-p)*0 = p*u(100)
expected value of not making the investment = u(50)
We can see from the graph that u(50) = 0.75*u(100)
Thus, the answer is (a) if p is 0.75
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