Your current wealth level is M = 49 and you are forced to make the following wager: If a fair coin comes up heads, you get 15; you lose 13 if it comes up tails. Your utility function is U = √M.
a. What is the expected value of this gamble?
b. What is its expected utility?
c. How would your answers change if the payoff for tails fell to a loss of 15?
d. What is the most you would pay to get out of the gamble described in part (c)?

  • CreatedDecember 12, 2014
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