1. Suppose Tony Hawk (a professional skateboarder) has a utility function u(x) = x/10 over his...
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1. Suppose Tony Hawk (a professional skateboarder) has a utility function u(x) = x²/10 over his monetary income x. He earns $200,000 from professional tournaments and commercial sponsorships. But he faces a 20% chance of suffering a serious injury that will reduce his annual income to $80,000. What is the expected utility of the gamble that Tony confronts? What is the expected value of wealth from this gamble? What can you say about his attitude towards risk? Draw Tony's utility function and show his attitude towards risk. 1. Suppose Tony Hawk (a professional skateboarder) has a utility function u(x) = x²/10 over his monetary income x. He earns $200,000 from professional tournaments and commercial sponsorships. But he faces a 20% chance of suffering a serious injury that will reduce his annual income to $80,000. What is the expected utility of the gamble that Tony confronts? What is the expected value of wealth from this gamble? What can you say about his attitude towards risk? Draw Tony's utility function and show his attitude towards risk.
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The expected utility of the gamble that Tony confronts is the expected value of his possible outcome... View the full answer
Related Book For
Managerial Economics Theory Applications and Cases
ISBN: 978-0393912777
8th edition
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield
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