An individual has a utility function of the form U = 
and faces a sitution in which income M is $64 with
probablity 1/2 and $144 with probablity 1/2.
1.) What payoff with certainty is indifferent to this gamble? 2.) How much would the individual be willing to pay to avoid taking the risk?
Homework Answers
Add Answer to:
An individual has a utility function of the form U =
and faces a sitution in...
3. Suppose an individual has a utility function U=U(M, X)=10 MX^2, where U is her utility,...
3. Suppose an individual has a utility function U=U(M, X)=10
MX^2, where U is her
utility, M is her(daily) money income and x is her(daily)
leisure hours. Each
day, the individual needs 6 hours for sleeping and other
essential personal matters
3. Suppose an individual has a utility function U = U(M,X) = 10 MX', where U is her utility, M is her (daily) money income and X is her (daily) leisure hours. Each day, the individual needs 6 hours...
The individual has a utility function of u(x1, x2) = min (4x1, 5x2) and faces prices...
The individual has a utility function of u(x1, x2) = min (4x1, 5x2) and faces prices p1=2 and p2=1. We know they consume 20 units of x2 and spend all their income. What is the demand function for x1?
3. Suppose an individual has a utility function U=U(M,X)=10 MX^2, where U is her utility, M...
3. Suppose an individual has a utility function U=U(M,X)=10
MX^2, where U is her
utility, M is her(daily) money income and x is her(daily)
leisure hours. Each
day, the individual needs 6 hours for sleeping and other
essential personal matters
3. Suppose an individual has a utility function U = U(M,X) = 10 MX, where U is her utility, M is her (daily) money income and X is her (daily) leisure hours. Each day, the individual needs 6 hours for...
Harry's relationship between Utility(U) and income (Y) is represented in the table below U(Y) 36 40...
Harry's relationship between Utility(U) and income (Y) is represented in the table below U(Y) 36 40 46 54 64 76 90 106 Y 4 10 12 14 16 (a) Draw Harry's utility function with Y on horizontal axis and UCY) on the vertical axis using the graph paper. e will (b) Suppose Harry is offered a gamble where with probability 0.5 he will receive 6 and with 0.5 h receive 14. What is the expected value (EY) of this bet?...
A person with the following utility function, u(x) = ln(x) faces a world where with probability...
A person with the following utility function, u(x) = ln(x) faces a world where with probability 0.1 will suffer of identity theft which will reduce their wealth from $250000 to $100000. This means that we can write: E{u(.)] = 0.91n(x) +0.1ln(y) where x would be the wealth under no identity theft and y the wealth under identity theft. This means that the marginal utilities are: MU 0.9, MUy = 0.1 Using this information answer the following questions 1) What is...
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...
A person with the following utility function, u(x) In(x) faces a world where with probability 0.1...
A person with the following utility function, u(x) In(x) faces a world where with probability 0.1 will suffer of identity theft which will reduce their wealth from $250000 to $100000. This means that we can write: Eu(.0.91n(x)+0.1n(y) where would be the wealth under no identity theft and y the wealth under identity theft This means that the marginal utilities are: MU0.9 MUy = 0.1 Using this information answer the following questions 1) What is this persons attitude towards risk? explain...
My von Neumann Morgenstern utility function is U (W) = 32 + (9/5)w1/2 for wealth w....
My von Neumann Morgenstern utility function is U (W) = 32 + (9/5)w1/2 for wealth w. I face a gamble that pays 1 with probability %, and 4 with probability %. Calculate my certainty equivalent for this gamble: CE=_ . Calculate my risk premium p for this gamble p=
Consider the utility function u(x) = ax + b e^cx where a, b, c are positive...
Consider the utility function u(x) = ax + b e^cx where a, b, c are positive scalars. (a) Compute the coefficient of absolute risk aversion. (b) Describe the risk attitude represented by u(x) and how it changes as x increases. (c) Write down the equations to determine the certainty equivalent and the risk premium of a gamble X for an individual with initial wealth w > 0. (d) What is the sign of the risk premium? How does the risk...
2) (20 points) Lynn has a utility function U(W) = W1/2, where W is the amount...
2) (20 points) Lynn has a utility function U(W) = W1/2, where W is the amount of wealth that she has. Lynn has two assets. She has $40,000 in a bank account, and she has a house worth $600,000, so her total wealth is initially $640,000. There is a 2% chance that her house is destroyed by a fire. a) (4 points) Considering the probability that there is a fire, what is Lynn’s Expected Wealth, E(W)? E(W) = ____________________________ b)...
3. Suppose an individual has a utility function U=U(M, X)=10
MX^2, where U is her
utility, M is her(daily) money income and x is her(daily)
leisure hours. Each
day, the individual needs 6 hours for sleeping and other
essential personal matters
3. Suppose an individual has a utility function U = U(M,X) = 10 MX', where U is her utility, M is her (daily) money income and X is her (daily) leisure hours. Each day, the individual needs 6 hours...
3. Suppose an individual has a utility function U=U(M,X)=10
MX^2, where U is her
utility, M is her(daily) money income and x is her(daily)
leisure hours. Each
day, the individual needs 6 hours for sleeping and other
essential personal matters
3. Suppose an individual has a utility function U = U(M,X) = 10 MX, where U is her utility, M is her (daily) money income and X is her (daily) leisure hours. Each day, the individual needs 6 hours for...
Harry's relationship between Utility(U) and income (Y) is represented in the table below U(Y) 36 40 46 54 64 76 90 106 Y 4 10 12 14 16 (a) Draw Harry's utility function with Y on horizontal axis and UCY) on the vertical axis using the graph paper. e will (b) Suppose Harry is offered a gamble where with probability 0.5 he will receive 6 and with 0.5 h receive 14. What is the expected value (EY) of this bet?...
A person with the following utility function, u(x) = ln(x) faces a world where with probability 0.1 will suffer of identity theft which will reduce their wealth from $250000 to $100000. This means that we can write: E{u(.)] = 0.91n(x) +0.1ln(y) where x would be the wealth under no identity theft and y the wealth under identity theft. This means that the marginal utilities are: MU 0.9, MUy = 0.1 Using this information answer the following questions 1) What is...
A person with the following utility function, u(x) In(x) faces a world where with probability 0.1 will suffer of identity theft which will reduce their wealth from $250000 to $100000. This means that we can write: Eu(.0.91n(x)+0.1n(y) where would be the wealth under no identity theft and y the wealth under identity theft This means that the marginal utilities are: MU0.9 MUy = 0.1 Using this information answer the following questions 1) What is this persons attitude towards risk? explain...
My von Neumann Morgenstern utility function is U (W) = 32 + (9/5)w1/2 for wealth w. I face a gamble that pays 1 with probability %, and 4 with probability %. Calculate my certainty equivalent for this gamble: CE=_ . Calculate my risk premium p for this gamble p=
Most questions answered within 3 hours.
-
2) You are given the task of finding a representation for a
circle in a drawing...
asked 36 minutes ago -
STUDY QUESTION: Does use of diet drug fen-phen
(fenfluramine-phentermine) cause valvular heart disease?
HINT: Valvular heart...
asked 28 minutes ago -
1. An object weighing 40 N rests on a surface. The coefficient
of friction is 0.35....
asked 1 hour ago -
Investor company owns 35% of investee company voting stock and
accounts for the investment under the...
asked 2 hours ago -
The number of major faults on a randomly chosen 1 km stretch of
highway has a...
asked 3 hours ago -
Consider the competitive environment of Starbuck's, Progressive
Insurance, a manufacturing firm with low turnover, or a...
asked 4 hours ago -
3. Gains from trade
Consider two neighbouring island countries called Euphoria and
Contente. They each have...
asked 5 hours ago -
A business executive has the option to invest money in two
plans: Plan A guarantees that...
asked 8 hours ago -
Hello, can someone please help me answer this question?
How much heat is absorbed by a...
asked 8 hours ago -
. A marketing researcher conducted a survey of 25 shoppers
randomly selected at the local mall...
asked 8 hours ago -
Create an comprehensive response to the
following:
Antimicrobial agents work on a multitude of microbes (bacteria,...
asked 8 hours ago -
6.13 LAB: Step counter. Section 6.3.
A pedometer treats walking 2,000 steps as walking 1 mile....
asked 8 hours ago