Suppose you are indifferent between dollar streams a and b in Table 8.4(a). Your utility function is u (x) = √x. What is your δ? Given the utility function, Table 8.4

(a) can be converted into a matrix of utilities as in Table 8.4(b). We can compute δ by setting up the following equation: 3 + δ2 = 1 + δ5. Or we can simply set up the following equation: √9 + δ√4 = √1 + δ√25. Either way, the answer is δ = 2/3.