Question

bling Chuck has risk-loving preferences, Uc(w) W2, and sometimes plays scratch-off tickets. Geraldine, Jack's sister, is risk averse with a utility function, UG(W)-W2. The chance for winning a prize is 1/10 and the price of the scratch-off ticket is $5. Each of them has an initial wealth of 100. What is the smallest prize that will cause Chuck to buy a ticket? What would be the expected payout of this $5 gamble? What is the smallest prize that will cause Geraldine to buy a ticket? What would be the expected payout of this $5 gamble:? If Chuck's initial wealth was instead 1000, what is the smallest prize that will cause him to buy a ticket? What would be the expected payout of this $5 gamble? If Geraldine's initial wealth was instead 1000, what is the smallest prize that will cause her to buy a ticket? What would be the expected payout of this $5 gamble? Now Chuck has a chance to play the lottery. The chance for winning the lottery is one in a million and the price of the ticket is $1. If Chuck's initial wealth is 100. What is the smallest jackpot for which he will buy a ticket? What would be the expected payout of this $1 gamble? Same question as in e. except Chuck now has an initial wealth of 1000. What does this say about who is more likely to play the lottery? a. b. c. d. e. f. ance

Answer 1

a. The smallest prize is $25.

B.the sm1allest prize is $1/25

C.$25would be his pay back money.

D.$1/25 as as his pay out money.

E.$2 was his payout from gamble

F.chunk is more likely to play a lottery.because he has the better pay back that is w square.