Question
Dorothy has a utility function of the form U=w 0.5 and faces a situation in which income is $36 with probability 0.5 and $100 with
Dorothy has a utility function of the form U=w0.5 and faces a situation in which income is $36 with probability 0.5 and $100 with probability 0.5.
a) Dorothy is indifferent between a certain payoff of $x and this gamble, What is x?
b) Suppose Dorothy is offered, for $32, full insurance for the $64 (potential) loss. Will she buy it? Why?
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Using R For Econometrics
Authors: Florian Heiss
1st Edition
1523285133, 9781523285136
