Kevin is a huge basketball fan, and he is thinking about placing a wager that the...
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"Kevin is a huge basketball fan, and he is thinking about placing a wager that the LA Lakers will win the basketball championship. An online betting market is offering 4-1 odds that the Lakers will win the championship. That is, if Kevin bets $100 that the Lakers will win, he will receive $500 if he is correct ($400 profit), and if he bets $100 that the Lakers will not win, he will receive $125 if he is correct ($25 profit). In either case, if he bets $100 and is incorrect, he will lose his $100. Suppose that Kevin believes that the Lakers have a 49% chance of winning the championship. Kevin's alternatives are: (i) bet that the Lakers will win the championship, (ii) bet that the Lakers will not win the championship, and (iii) make no bet. If Kevin is risk averse with the following utility function u(x) =1 - exp(-0.0002x), where x is Kevin's profit, what should he do? Enter the certain equivalent of Kevin's best alternative." "Kevin is a huge basketball fan, and he is thinking about placing a wager that the LA Lakers will win the basketball championship. An online betting market is offering 4-1 odds that the Lakers will win the championship. That is, if Kevin bets $100 that the Lakers will win, he will receive $500 if he is correct ($400 profit), and if he bets $100 that the Lakers will not win, he will receive $125 if he is correct ($25 profit). In either case, if he bets $100 and is incorrect, he will lose his $100. Suppose that Kevin believes that the Lakers have a 49% chance of winning the championship. Kevin's alternatives are: (i) bet that the Lakers will win the championship, (ii) bet that the Lakers will not win the championship, and (iii) make no bet. If Kevin is risk averse with the following utility function u(x) =1 - exp(-0.0002x), where x is Kevin's profit, what should he do? Enter the certain equivalent of Kevin's best alternative."
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Related Book For
Essentials of Business Statistics Communicating With Numbers
ISBN: 978-0078020544
1st edition
Authors: Sanjiv Jaggia, Alison Kelly
Posted Date:
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