Show that the linear-plus-exponential utility function in Problem 14.25 has decreasing risk aversion. Repeat Problem 14.25 With
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Repeat Problem 14.25
With U (x) = 0.0003 x – 8.48e – x = 2775. A utility function of this form is called linear-plus-exponential, because it contains both linear (0.0003 x) and exponential terms. It has a number of interesting and useful properties, including the fact that it switches only once among any pair of lotteries (such as those in Problem 14.24) as wealth increases.
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We can use gamble A from problem 1425 using the three leve...View the full answer
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Related Book For 
Making Hard Decisions with decision tools
ISBN: 978-0538797573
3rd edition
Authors: Robert Clemen, Terence Reilly
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