Question
Vivian is offered a prospect that gives her 1600 with p=0.1, 2500 with p = 0.4 and 3600 with p=0.5. Her U = Y^0.5 and
Vivian is offered a prospect that gives her 1600 with p=0.1, 2500 with p = 0.4 and 3600 with p=0.5. Her U = Y^0.5 and so EU = 0.1 (1600^0.5) + 0.4 (2500^0.5) + 0.5 (3600^0.5) = 54. Which of the following is true?
a)The certain income that would give the same utility as this prospect is 542 = 2916.
b)The risk premium is 2960 - 2916 = $44.
c)Both a and b.
d) None of the above.
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Marketing
Authors: John McMurry, Robert Fay
13th Edition
125973806X, 9781259738067
