Ex. 1

Suppose preferences can be represented by PT with w^ + (p) = p ^ 2 and w^ - (p) = p as well as value function

v(x)= sqrt x ,&x>=0\\ - 2sqrt(- x) ,&x

Calculate the utlity and certainty equivalents of the following lotteries.

(a) mu_{1} = (0.1, 9; 0.4, - 4; 0.4, 4; 0.1, - 9)

(b) 2 (0.3,-9; 0.2, 25: 0.1, 36: 0.4,-16)

(c) 3= (0.2,-5;0.3,-2;0.35, 7:0.15, 12)

(d )mu_{4} = (0.1, - 16; 0.1, - 9; 0.1, 25; 0.7 * 0.36)

Assignment Two Ex. 1 Suppose preferences can be represented by PT with w+(p)=p2 and w(p)=p as well as value function v(x)={x,2x,x0x