An investor has an opportunity to play a lottery that depends on the outcome of flipping two fair coins. If both coins come up tails,
An investor has an opportunity to play a lottery that depends on the outcome of flipping two fair coins. If both coins come up tails, the lottery payoff is $0. If one coin comes up heads and the other tails, the lottery payoff is $5. If both coins come up heads, the lottery payoff is $10.
What is the maximum amount a CRRA utility investor with $10 of initial wealth and a gamma = 3 would agree to pay for participation?
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Authors: Jan De Spiegeleer, Wim Schoutens, Cynthia Van Hulle
1st Edition
1118449991, 978-1118449998
