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Suppose that a decision maker's utility as a function of her wealth, x , is given by U ( x ) = ln (2 x-1000)
Suppose that a decision maker's utility as a function of her wealth, x, is given by U(x) = ln (2x-1000) (where ln is the natural logarithm).
The decision maker now has $10,000 and two possible decisions. For Alternative 1, she gains $1000 for certain. For Alternative 2, she gains $1500 with a probability 0.9 and loses $2,000 with a probability 0.1. Which alternative should she choose and what is her expected utility (rounded to 2 decimals)? She should choose Alternative______________________and her expected utility is______________________
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