Suppose that a decision maker has the following utility function: U (x) = 0.000156 x2 +
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Suppose that a decision maker has the following utility function:
U (x) = – 0.000156 x2 + 0.028125 x – 0.265625
Use this utility function to calculate risk premiums for the gambles shown in Tables 14.3 and 14.4; create a similar table but based on this quadratic utility function. How would you classify the risk attitude of a decision maker with this utility function? Does such a risk attitude seem reason-able to you?
Table 14.3
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Related Book For
Making Hard Decisions with decision tools
ISBN: 978-0538797573
3rd edition
Authors: Robert Clemen, Terence Reilly
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