A bettor with utility function U(x) = ln(x), where x is total wealth, has a choice between

Question:

A bettor with utility function U(x) = ln(x), where x is total wealth, has a choice between the following two alternatives:

A Win $10,000 with probability 0.2

Win $1,000 with probability 0.8

B Win $3,000 with probability 0.9

Lose $2,000 with probability 0.1

a. If the bettor currently has $2,500, should he choose A or B?

b. Repeat a, assuming the bettor has $5,000.

c. Repeat a, assuming the bettor has $10,000.

d. Do you think that this pattern of choices between A and B is reasonable? Why or why not?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Making Hard Decisions with decision tools

ISBN: 978-0538797573

3rd edition

Authors: Robert Clemen, Terence Reilly

See More Books

Question Posted: Dec 22, 2015 02:08 AM

See More Questions

Repeat Problem 14.24 with U (x) = 0.0003 x 8.48e x = 2775. A utility function of this form is called linear-plus-exponential, because it contains both linear (0.0003 x) and exponential terms. It...
An investor with assets of $10,000 has an opportunity to invest$5,000 in a venture that is equally likely to pay either $15,000 or nothing. The investors utility function can be described by the...
Consider a utility function U for which U(0) = 5, U(1) = 8, and U(2) = 10. Suppose that a person who has this utility function is indifferent to either of two gambles X and Y, for which the...
If f (x, y, z) = 2xyz - 1 + x2z3, find the following. (a) f/x (b) f/y (c) f/z
Bill Padley expects to invest $10,000 for 25 years, after which he wants to receive $108,347. What rate of interest must Padley earn?
Construct a pair of primal and dual problems, each with two decision variables and two functional constraints, such that both problems have no feasible solutions. Demonstrate this property...
What is total cost of ownership? AppendixLO1
A worker views leisure and income as goods and has an opportunity to work at an hourly wage of $10 per hour. a. Illustrate the workers opportunity set in a given 24-hour period. b. Suppose the worker...
44. A machine which cost $500,000 is acquired on October 1, 2020. Its estimated salvage value is $50,000 and its expected life is six years. Round all answers to the nearest dollar. a. Calculate...
The mean per capita daily water consumption in a village in Bangladesh is about 83 liters per person and the standard deviation is about 11.9 liters per person. Random samples of size 50 are drawn...
You have considered insuring a particular item of property (such as an expensive camera, your computer, or your Stradivarius violin), but after considering the risks and the insurance premium quoted,...
Show that the linear-plus-exponential utility function in Problem 14.25 has decreasing risk aversion. Repeat Problem 14.25 With U (x) = 0.0003 x 8.48e x = 2775. A utility function of this form is...
Solve the following system of equations. 9x/5 + 5y/4 = 47/10 2x/9 + 3y/8 = 5/36
1 Evaluate the given limits using the 10. f(x) = (x-3)(x-5) (a) lim f(x) X-3 (b) lim f(x) x-3+ (c) lim f(x) X-3 graph of the function (d) lim f(x) x+5= (e) lim f(x) x+5+ (f) lim f(x) X-5 50 y -50 2 6...
In Year 1 , Stallman Co . had a break - even point of 8 0 , 0 0 0 units, a selling price of $ 1 9 per unit, and fixed costs of $ 2 0 0 , 0 0 0 . What is Stallman Co . s variable cost per unit? (...
What will be the output of following statements: int a = 3; if(a!= 3){ cout
28. What will this program print, assuming dynamic scoping? (10 points) Consider the following code snippet for problems #29-31. For this problem, assume dynamic scoping. program main() 1. 2. { 3. 4....
The reaction X + Y products was studied using the method of initial rates. The initial rate of consumption of X was measured in three different experiments. Data are provided below. Expt [X] 0 (in...
The standard Keynesian consumption function presented by the British economist John Maynard Keynes in his 1936 opus, The General Theory of Employment, Interest and Money, holds that a consumer's...
1. Firms may hold financial assets to earn returns. How the firm would classify financial assets? What treatment will such financial assets get in the financial statements in accordance with US GAAP...
Identify any vertices in Graph $V$ that are not adjacent. Use the figure showing Graphs $S, T, U, V$, and $W$. b d Graph S e Graph T e Graph U b a e Graph V e b Graph W e
Floyd's Bumpers has distribution centers in Lafayette, Indiana: Charlotte, North Carolina; Los Angeles, California; Dallas, Texas; and Pittsburgh, Pennsylvania. Each distribution center carries all...
Floyd's Bumpers pays a transportation company to ship its product in full truckloads to its customers. Therefore, the cost for shipping is a function of the distance traveled and a fuel surcharge...
Use the spreadsheet model constructed to answer Problem 1 to answer this problem. a. Construct a one-way data table with production volume as the column input and profit as the output. Breakeven...
Callaho Inc. began operations on January 1 , 2 0 1 8 . Its adjusted trial balance at December 3 1 , 2 0 1 9 and 2 0 2 0 is shown below. Other information regarding Callaho Inc. and its activities...
Required: 1. Complete the following: a. Colnpute the unit product cost under absorption costing. b. What is the company's absorption costing net operating income (loss) for the quarter? c. Reconcile...
Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have an 8% coupon rate, payable semiannually. The bonds mature in 6 years, have a face value of $1,000, and a yield to...

A bettor with utility function U(x) = ln(x), where x is total wealth, has a choice between

Question:

Step by Step Answer:

a If wealth 2500 then EUA 02 ln12500 08 ln 3500 8415 EUB 09 ln5500 01 ln500 8373 Cho...View the full answer

Making Hard Decisions with decision tools

Students also viewed these Statistics questions