Question
You are in charge of the environmental policy division of a local non-profit. Suppose that you are only allowed to apply for a special cleanup
You are in charge of the environmental policy division of a local non-profit. Suppose that you are only allowed to apply for a special cleanup grant once, and you have just been awarded a grant worth $160,000. You are given the choice to take this money now or wait until next year, and see how much money is available next year. Since next year new government officials may be in place, you may want to wait to see if there is more money. Assume that $1 today is equivalent to $1 next year. There are three possible outcomes:
Very favorable government: money awarded: $250,000 and probability 0.5
Unfavorable government : money awarded: $40,000 and probability 0.1
Moderately favorable government: money awarded: $90,000 and probably 0.4
Should you accept the money today or wait until next year? In your answer, make sure to mention the expected value of the money to be awarded, the expected utility, and the certainty equivalent of the gamble. Assume that U(X) =X, where X is money in dollars.
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