Question

Your friend wants to participate in a lottery that pays $100 with a probability 1/100 and...

Your friend wants to participate in a lottery that pays $100 with a probability 1/100 and nothing otherwise. For simplicity, assume that participation is free.

1. Plot his Bernoulli utility function that is given by U(C) = C 2. Is he risk-averse, risk-neutral or risk-loving?

2. Compute the expected value of the lottery and the expected utility from the lottery.

3. Show on a graph the expected value of the lottery and the expected utility from the lottery.

4. You are strongly against gambling. What minimal amount should you offer your friend to incentivize him not to play?

5. What if his Bernoulli utility function was given by U(C) = √ C? What minimal amount would be in that case?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose Feng have $50 and you would like to purchase some lottery tickets. Assume that he...
Suppose Feng have $50 and you would like to purchase some lottery tickets. Assume that he can win with 40% probability, and if he win, he can earn 100% of his investment (i.e., double the investment). On the other hand, if he lose, he loses 100% of his investment. Further assume that his utility function is given by u(w) = -w2 + 100w. Answer each of the following. (a) Is Feng risk-averse, risk-neutral, or risk-loving? How do you know? (b)...
LeBron has wealth = $200 and has a 75% probability that he requires surgery, that costs...
LeBron has wealth = $200 and has a 75% probability that he requires surgery, that costs $72. LeBron's utility curve over total wealth is given by U(W) = Square Root W. (a) [1 point] is sam a risk- adverse , risk loving or risk neutral individual? Why? (b) [1point] what is his expected loss (c) [2 points] suppose an insurance company incurs an over head expense of $20 per additional client. Can the company profitably insure LeBron?
The following table display uncertainty due to health in Tony's monthly income: State Probability Income Utility...
The following table display uncertainty due to health in Tony's monthly income: State Probability Income Utility Sick 0.5 2,500 U(2,500) Healthy 0.5 4,900 U(4,900) Let Tony's utility function be U=Y0.5, where Y is Tony's monthly income. Moreover, let E[Y] denote Tony's expected income and E[L] denote Tony's expected loss. A. a). Tony's expected utility from income is given by a. 62 b. 60.83 c. 60 d. none of the above b). calculate the maximum amount that Tony is willing to...
QUESTION 1 The optimal solution to an LP problem was  5.17 and  3.66. If  and  were restricted to be integers,...
QUESTION 1 The optimal solution to an LP problem was  5.17 and  3.66. If  and  were restricted to be integers, then  = 5 and 4 will be a feasible solution, but not necessarily an optimal solution to the IP problem. True False Question 2 A sample of 220 patients of a family medicine practice was surveyed two weeks after their doctor's visit to ask them whether the symptoms that prompted their visit improved, and whether they complied with the physician's treatment plan. The following table...
READ THE CASE STUDY AND ANSWER THE FOLLOWING QUESTIONS 2nd CASE: An Unexplained Death A 65-year-old...
READ THE CASE STUDY AND ANSWER THE FOLLOWING QUESTIONS 2nd CASE: An Unexplained Death A 65-year-old man of Scandinavian descent was rushed to the Emergency Room of your local hospital after a family member discovered him unconscious in his home. The woman who dialed “911” told the dispatcher that the man, her brother, was the local librarian of the past 10 years and had no spouse or children. She reported that they had spoken the day before, and he had...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
Discuss how the respective organizations’ relations with stakeholders could have potentially been affected by the events...
Discuss how the respective organizations’ relations with stakeholders could have potentially been affected by the events that took place at Enron and how the situation could have been dealt with differently to prevent further damage? THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies,...
Using the model proposed by Lafley and Charan, analyze how Apigee was able to drive innovation....
Using the model proposed by Lafley and Charan, analyze how Apigee was able to drive innovation. case:    W17400 APIGEE: PEOPLE MANAGEMENT PRACTICES AND THE CHALLENGE OF GROWTH Ranjeet Nambudiri, S. Ramnarayan, and Catherine Xavier wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT