In Problem 10 , what is each students maximized expected utility? Who has the larger expected wealth?
Question:
In Problem 10 , what is each student’s maximized expected utility? Who has the larger expected wealth? Who ends up with the larger wealth at the end of the summer?
Two students, Jim and Kim, are offered summer jobs managing a student house-painting business. There is a 50 percent chance that either of them will be successful and end up with $21,000 of wealth to get them through the next school year. But there is also a 50 percent chance that either will end up with only $3,000 of wealth. Each could take a completely safe but back-breaking job picking fruit that would leave them with a guaranteed $9,000 at the end of the summer. The table in the next column shows Jim’s and Kim’s utility of wealth schedules.
Problem 10
Does anyone take the painting job? If so, who takes it and why? Does anyone take the job picking fruit? If so, who takes it and why?
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