Question
Assume that you have a logarithmic utility function for wealth U(W) = In (W) and that you are faced with a 50/50 chance of winning
Assume that you have a logarithmic utility function for wealth U(W) = In (W) and that you are faced with a 50/50 chance of winning or losing $1,000. How much will you pay to avoid this risk if your current level of wealth is $10,000? How much would you pay if your level of wealth were $1,000,000?
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Financial Accounting
Authors: Belverd E. Needles Jr,, Marian Powers
8th Edition
0618310746, 978-0618310746
