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The following table shows the relationship between your wealth (in thousands of dollars) and your utility: Wealth 5 10 15 Utility 11.0 15.0 19.0 22.0
The following table shows the relationship between your wealth (in thousands of dollars) and your utility: Wealth 5 10 15 Utility 11.0 15.0 19.0 22.0 25.0 27.0 29.0 20 25 30 35 You can invest in asset A, which offers a riskless payoff of $20,000 or in asset B, which pays $15,000 with 40% probability and $25,000 with 60% probability. Which investment do you choose? O A. B, because its expected utility of 22.6 is greater than the utility of A. O B. B, because its expected utility of 23.4 is greater than the utility of A. OC. I am indifferent between A and B because I am risk neutral. OD. A, because its utility is greater than the expected utility of B, which is 21.4. After a successful year for your beach shop, you are wondering whether to open one more store this year. There are equal chances for the coming summer to be rainy or sunny. If the weather is sunny, you will earn $55,000 in profits per store. However, if the weather is rainy, your profit will be $35,000 if you open one store and zero if you open two stores. What is your expected profit under complete information? O A. $90,000 OB. $55,500 OC. $72,500 OD. $110,000
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