Assess your risk tolerance (R). Now rescale your exponential utility functionthe one you obtain by substituting your

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Assess your risk tolerance (R). Now rescale your exponential utility function—the one you obtain by substituting your R value into the exponential utility function—so that U($100) = 0 and U($20,000) = 1. That is, find constants a and b so that α + β (1 – e – 100 = R) = 0 and α + β (1 – e – 20; 000 = R) = 1. Now plot the rescaled utility function on the same graph with the utility assessments from Problem 14.12. How do your assessments compare?
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Making Hard Decisions with decision tools

ISBN: 978-0538797573

3rd edition

Authors: Robert Clemen, Terence Reilly

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