correct Question 19 Imagine your utility is given by In(w), where w is the amount of wealth you have and "In" is the natural log function. You are offered the following game: a dealer will flip a fair coin. If it lands on heads, you will get $247, but if lands on tails, you will get $57. What is the most that you would be willing to pay to play this game? Hint: Think about the certainty equivalent. Enter your answer with one decimal point and NO dollar signs or commas (i.e., 30.4, not $30.38). The question will allow for slight rounding errors. 94.5
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- 2. Alice believes that her car would cost £12500 to replace if it was stolen or damaged. Based on crime statistics for the area she lives in, she believes that the probability of her car being stolen or damaged is 0.15. (i) Alice's utility function is given by U(w) = ln(w) for w > 0 and she as £35000 in the bank. Calculate how much Alice would be prepared to pay (in a single payment) to insure her car against theft or damage (ii) Repeat the calculation in the previous part but now assume Alice has £500000 in the bank.4. Kate has von Neumann-Morgenstern utility function U(x1,x2) = m7. She currently has $2025. a. Would she be willing to undertake a gamble that involves a gain $2875 with probability + and a loss of $1125 with probability ? Show your work and explain your answer. b. Would she be willing to undertake a gamble that involves a gain $2599 with probability and a loss of $800 with probability ? Show your work and explain your answer.1. A woman with current wealth X has the opportunity to bet an amount on the occurrence of an event that she knows will occur with probability P. If she wagers W, she will received 2W, if the event occur and o if it does not. Assume that the Bernoulli utility function takes the form u(x) = -e-rx with r>0. How much should she wager? Does her utility function exhibit CARA, DARA, IARA?
- Jin's Utility Function Wealth Utility (Dollars) 60,000 4,000 61,000 4,110 62,000 4,209 63,000 4,288 Refer to Table 27-1. If Jin's current wealth is $61,000, then O his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Jin is not risk averse. O his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Jin is not risk averse. O his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Jin is risk averse. his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Jin is risk averse.Hello can any one help with this Economics question: A contractor spends Dollar 3,000 to prepare for a bid on a construction project which, after deducting manufacturing expenses and the cost of bidding, will yield a profit of dollar 25,000 if the bid is won. If the chance of winning the bid is ten per cent, compute his expected profit and state the likely decision on whether to bid or not to bid?2. Suppose you asked the following question to Person A and Person B: "How much are you willing to pay to avoid the following fair gamble – win $100 with 50% chance and lose $100 with 50% chance (thus, Variance is equal to 10,000)?" A's answer- $2 B's answer-$10 Assuming that A and B have CARA utility function, a) compute their absolute risk aversion coefficients (approximately) and b) compute their risk premiums for avoiding the following new gamble - win $500 with 50% chance and lose $500 with 50% chance.
- Khalid has a utility function U = W1/2, where W is his wealth in millions of dollarsand U is the utility he obtains from the wealth. In a game show, the host offershim a choice between (A) $4 million for sure, or (B) a gamble that pays $1million with probability 0.6 and $9 million with probability 0.4.i. Graph Khalid’s utility function with the help of above utility function. Ishe risk lover? Explain. ii. Does A or B choice offer Khalid a higher expected prize? Explain yourreasoning with appropriate calculations. iii. Does A or B offer Khalid a higher expected utility? Again, show yourcalculations. iv. Should Jamal pick A or B choice? Why?Your utility function is given by M1/2. You have $100 and are planning to invest in a venture where you can win or lose 50 with equal probability. Will you accept the venture? What is the minimum gain you need to make in the good scenario such that you will invest in the venture?1. Now, imagine that Port Chester decides to crack down on motorists who park illegally by increasing the number of officers issuing parking tickets (thus, raising the probability of a ticket). If the cost of a ticket is $100, and the opportunity cost for the average driver of searching for parking is $12, which of the following probabilities would make the average person stop parking illegally? Assume that people will not park illegally if the expected value of doing so is negative. Check all that apply. A. 9% B. 18% C. 17% D. 10% 2. Alternatively, the city could hold the number of officers constant and discourage parking violations by raising the fine for illegal parking. Suppose the average probability of getting caught for parking illegally is currently 10% citywide, and the average opportunity cost of parking is, again, $12. The fine that would make the average person indifferent between searching for parking and parking illegally is ____ , assuming that people will not…
- 5. Consider a decision-maker who expects to have a car accident with chance ; if this occurs, he will incur $L in damages. He can purchase as much auto insurance, q, as he likes, at a price of p per dollar of coverage: this means that if he pays pq upfront (as the insurance premium), he'll receive a payment of q from the insurance company if an accident occurs. (a) Write out his expected utility from purchasing insurance level q, assuming a utility-of- wealth function u(w) and initial wealth wo. 1 (b) Show that the optimal level of insurance, q, solves u' (wo - L + (1 - p)q)) u' (wo - pq) = p(1 - π) T(1-P) (c) Now assume that u(w) 1 - e-aw, where a > 0 (this is known as a "CARA", or "constant absolute risk aversion", utility function; a parametrizes risk aversion). Solve explicitly for the optimal insurance, and show that it does not depend on wealth.Microeconomics Wilfred’s expected utility function is px1^0.5+(1−p)x2^0.5, where p is the probability that he consumes x1 and 1 - p is the probability that he consumes x2. Wilfred is offered a choice between getting a sure payment of $Z or a lottery in which he receives $2500 with probability p = 0.4 and $3700 with probability 1 - p. Wilfred will choose the sure payment if Z > CE and the lottery if Z < CE, where the value of CE is equal to ___ (please round your final answer to two decimal places if necessary)3. Further questions Now, imagine that Port Chester decides to crack down on motorists who park illegally by increasing the number of officers issuing parking tickets (thus, raising the probability of a ticket). If the cost of a ticket is $100, and the opportunity cost for the average driver of searching for parking is $12, which of the following probabilities would make the average person stop parking illegally? Assume that people will not park illegally if the expected value of doing so is negative. Check all that apply. 13% 21% 9% 10% Alternatively, the city could hold the number of officers constant and discourage parking violations by raising the fine for illegal parking. Suppose the average probability of getting caught for parking illegally is currently 10% citywide, and the average opportunity cost of parking is, again, $12. The fine that would make the average person indifferent between searching for parking and parking illegally is 5 park illegally if the expected value of…