# Question

Smith has an investment opportunity that pays 33 with probability 1/2 and loses 30 with probability 1/2.

a. If his current wealth is M = 111, and his utility function is U = √M, will he make this investment?

b. Will he make it if he has two equal partners? (Be sure to calculate the relevant expected utilities to at least two decimal places.)

a. If his current wealth is M = 111, and his utility function is U = √M, will he make this investment?

b. Will he make it if he has two equal partners? (Be sure to calculate the relevant expected utilities to at least two decimal places.)

## Answer to relevant Questions

John has a von Neumann–Morgenstern utility function given by U = √M, where M is his income. If he becomes an economics professor, he will make M = 81/ yr with probability 1. If he becomes an attorney, he will make M = ...The exhaust system on your 1986 Escort needs to be replaced, and you suspect that the price of a new exhaust system is the same as what you would get if you tried to sell the car. If you know that the car is otherwise okay, ...If the wages you are offered are uniformly distributed between $75 and $150, and if the cost of looking for another job is $2, what is the minimum wage you should accept?Suppose your happiness is given by a Kahneman-Tversky value function like the one shown in the diagram.You have decided to put the most favorable spin on the various combinations of events that occur in your life. For each ...Mary will drive across town to take advantage of a 40 percent off sale on a $40 blouse but will not do so to take advantage of a 10 percent off sale on a $1000 stereo. Assuming that her alternative is to pay list price for ...Post your question

0