Homework Answers
A person with the constant marginal utility of money is risk-neutral as he prefers income and risk equally because a risk-neutral person places the same value to an increase in income or a decrease in income.
Therefore, the correct answer is option (A) Risk Neutral
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An individual with a constant marginal utility of income will be: o risk neutral risk averse....
Utility 50 75 Income (5) 59 Figure 5.2.2 The individual pictured in Figure 5.2.2: must be...
Utility 50 75 Income (5) 59 Figure 5.2.2 The individual pictured in Figure 5.2.2: must be risk-averse. could be risk-averse, risk-neutral, or risk-loving. O must be risk-loving.
2. (a) Explain the terms risk averse, risk loving and risk neutral with the aid of...
2. (a) Explain the terms risk averse, risk loving and risk neutral with the aid of diagrams. Jane's utility (U) depends upon her income( Y) according to the following table U(Y) 50 7 100 9.5 150 200一一 14 250 300 350 12 16.5 17 19 She has received a prize with an uncertain value. In particular, with probability 0.25 she wins $300 and with probability 0.75 she wins $100. (b) What is the expected payoff from this prize? What is...
Do the following utility functions describe risk averse, risk loving or risk neutral individuals? a. utility...
Do the following utility functions describe risk averse, risk loving or risk neutral individuals? a. utility u(w) = 3w4 - 7 describes b. utility u(w) = 770.7 + 7 describes c. utility u(W) = 0.2w + 13 describes d. utility u(w) = 2w2 + 0.5w0.5 describes
Problem 1. Do the following utility functions represent risk-averse, risk-neutral or risk-loving preferences? Motivate your answers....
Problem 1. Do the following utility functions represent risk-averse, risk-neutral or risk-loving preferences? Motivate your answers. In each question, w is the wealth. (a) u(w)10w3 c) u(w)-e4 (d) u(w)-1- e
pleade help the answer risk averse is wrong need hw help Incorrect Question 8 0/0.27 pts...
pleade help the answer risk averse is wrong need hw help
Incorrect Question 8 0/0.27 pts Amos Long's utility of income function is given as:U(I) = 11.5, where I represents income. From this you would say that he is risk averse. risk loving. risk neutral none of the above The easiest way is using some simple numbers as an example. Another small trick is checking the power. If the power is bigger than 1, it is risking loving. Please check...
6. A decision maker has a vNM utility function over money of u(x) = x2. This...
6. A decision maker has a vNM utility function over money of u(x) = x2. This decision maker is (a) risk-averse. (b) risk-neutral. (c) risk-loving. (d) none of the above. 7. Consider two lotteries: • Lottery 1: The gamble (0.1, 0.6, 0.3) over the final wealth levels ($1, $2, $3). (The expected value of this lottery equals $2.2) • Lottery 2: Get $2.2 for sure. a) Any risk-averse individual will choose the first lottery. b) Any risk-averse individual will choose...
8. An individual with utility function over money u(w) = 8Vw has $C in cash and...
8. An individual with utility function over money u(w) = 8Vw has $C in cash and a lottery ticket that pays $W if it wins and nothing if it loses. The probability of winning is .. Suppose an insurance is available at price $p per unit, where each unit of insurance pays $1 if the ticket does not win and nothing if it wins. (a) Is the individual risk averse, risk neutral, or risk loving? (b) What is the fair...
6. Consider an individual whose utility function over money is u(w)= 1+2w2. (a) Is the individual...
6. Consider an individual whose utility function over money is u(w)= 1+2w2. (a) Is the individual risk-averse, risk-neutral, or risk-loving? Does it depend on w? (b) Suppose the individual has initial wealth ¥W and faces the possible loss of Y". The probability that the loss will occur is . Suppose insurance is available at price p, where p is not necessarily the fair price. Find the optimal amount of insurance the individual should buy. You may assume that the solution...
Describe analytically and graphically how a risk-averse decision-maker differs from a risk-neutral decision-maker.
Describe analytically and graphically how a risk-averse decision-maker differs from a risk-neutral decision-maker.
Q1Which of the following statements describes a risk averse individual when faced with income from a...
Q1Which of the following statements describes a risk averse individual when faced with income from a risky activity? 1.Group of answer choices 2.Her risk premium is positive 3.Her risk premium is negative 4.None of the above Q2Which of the following statements describes a risk loving individual when faced with income from a risky activity? 1.Her certainty equivalent is greater than the expected value of income from the risky activity 2.Her certainty equivalent is less than the expected value of income...
Utility 50 75 Income (5) 59 Figure 5.2.2 The individual pictured in Figure 5.2.2: must be risk-averse. could be risk-averse, risk-neutral, or risk-loving. O must be risk-loving.
2. (a) Explain the terms risk averse, risk loving and risk neutral with the aid of diagrams. Jane's utility (U) depends upon her income( Y) according to the following table U(Y) 50 7 100 9.5 150 200一一 14 250 300 350 12 16.5 17 19 She has received a prize with an uncertain value. In particular, with probability 0.25 she wins $300 and with probability 0.75 she wins $100. (b) What is the expected payoff from this prize? What is...
Do the following utility functions describe risk averse, risk loving or risk neutral individuals? a. utility u(w) = 3w4 - 7 describes b. utility u(w) = 770.7 + 7 describes c. utility u(W) = 0.2w + 13 describes d. utility u(w) = 2w2 + 0.5w0.5 describes
Problem 1. Do the following utility functions represent risk-averse, risk-neutral or risk-loving preferences? Motivate your answers. In each question, w is the wealth. (a) u(w)10w3 c) u(w)-e4 (d) u(w)-1- e
pleade help the answer risk averse is wrong need hw help
Incorrect Question 8 0/0.27 pts Amos Long's utility of income function is given as:U(I) = 11.5, where I represents income. From this you would say that he is risk averse. risk loving. risk neutral none of the above The easiest way is using some simple numbers as an example. Another small trick is checking the power. If the power is bigger than 1, it is risking loving. Please check...
8. An individual with utility function over money u(w) = 8Vw has $C in cash and a lottery ticket that pays $W if it wins and nothing if it loses. The probability of winning is .. Suppose an insurance is available at price $p per unit, where each unit of insurance pays $1 if the ticket does not win and nothing if it wins. (a) Is the individual risk averse, risk neutral, or risk loving? (b) What is the fair...
6. Consider an individual whose utility function over money is u(w)= 1+2w2. (a) Is the individual risk-averse, risk-neutral, or risk-loving? Does it depend on w? (b) Suppose the individual has initial wealth ¥W and faces the possible loss of Y". The probability that the loss will occur is . Suppose insurance is available at price p, where p is not necessarily the fair price. Find the optimal amount of insurance the individual should buy. You may assume that the solution...
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