Let > 0. A decision maker has a utility function for money of the form Suppose
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Suppose that this decision maker is trying to decide whether or not to buy a lottery ticket for $1. The lottery ticket pays $500 with probability 0.001, and it pays $0 with probability 0.999. What would the values of α have to be in order for this decision maker to prefer buying the ticket to not buying it?
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U(x)=Ir" if x > 0, x if0.
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The utility of not buying the ticket is U0 0 If the decision maker buys the ticket the utility i...View the full answer
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Related Book For
Probability And Statistics
ISBN: 9780321500465
4th Edition
Authors: Morris H. DeGroot, Mark J. Schervish
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