Question
Irem has a utility function U(x)= x1/3. She is indifferent between 1000 TL for sure and a lottery which offers m TL with probability and
Irem has a utility function U(x)= x1/3. She is indifferent between 1000 TL for sure
and a lottery which offers m TL with probability and zero with probability . She does not
need to make a payment to get the lottery.
a) Determine m.
b) Is Irem risk loving, risk neutral or risk averse? Discuss briefly the concepts of
Certainty Equivalent (CE) and Expected Monetary Value of the Lottery (EMV) and justify
your result based on these concepts of CE and EMV.
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Business Law
Authors: Henry Cheeseman
8th Edition
0133130649, 9780133130645
