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A decision maker has a utility function for monetary gains x given by ux) (x +10,000)12. (a) Show that the person is indifferent between the status quo and L: With probability, he or she gains $80,000 With probabilityhe or she loses S10,000 (b) If there is a 10% chance that a painting valued at $10,000 will be stolen during the next year, what is the most (per year) that the decision maker would be willing to pay for insurance covering the loss of the painting? (Answer: $1900)

math   Statistics-And-Probability   
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0 Solution: Given that, available utf -Iun ction for monetary a) Show that い! $80,ooo babiitj (213) helshe losses loo00- 213 113 80,000 一 10,000 b For the first uestion we aim to see that-the expected utouut of lottery 1 has -the same cxpected utỉPH aslo

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