Question: A consumer has an expected utility function given by u(w) = In w. He is offered the opportunity to bet on the flip of a

A consumer has an expected utility function given by u(w) = In w.

He is offered the opportunity to bet on the flip of a coin that has a proba-

bility x of coming up heads. If he bets &z, he will have w + z if head comes up and w - z if tails comes up. Solve for the optimal z as a function of x.

What is his optimal choice of z when I = 1/2?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Introduction To Microeconomics Questions!

hiAn individual has a utility function given by (W) - W, and initial wealth of $100. If he plays a costless lottery in which he can win or lose $10 at the flip of a coin, compute his expected...

(a) Expected Utility Theory implies that a risk averse agent will always buy some amount of insurance". Discuss this statement. (b) A consumer has a utility function over wealth given by U (w) =...

Answer all macro quiz... Question 3 (20 points) Consider the following decentralized real business cycle model. The representative household has preferences over consumption and leisure. Expected...

Assume that a risk-averse consumer has a utility function u ( w ) where w is wealth. This consumer is offered the opportunity to bet on the flip of a coin that has probability of coming up tails. If...

all Jou u se A or 6 (60 points) H US of any of the three assets (stock A, stock B and the polltolio would you choose? e points) You have decided that you are going to invest in the following assets...

Consumer A has a utility function of U (w) in dollar. And she has a current wealth of $80,000. Consumer B has a utility function of U(w) = ,1-0.6 (106) w where w is her wealth = (1-10.4) w1-0.4 with...

Help me please. In the month of September, all of the walmart grocery stores in Virginia sold 429,382 eggs. In that same month, all of the walmart grocery stores in Texas sold 283,054 eggs. How many...

1. a. Two investors, A and B, are evaluating the same investment opportunity, which has an expected value of 100. The utility functions of A and B are ln(x) and x 2 , respectively. Which investor has...

BELOW ARE MY QUESTIONS... P7 (8c) It is discovered that ACG's are essential for use in technology for detecting terrorist activities. As a matter of national security, Accounet allows the US...

Suppose I spend my daily budget of 18 non-working hours on a mixture of sleeping hours S and other leisure L, My utility is given by U =2S + L . How many hours do I sleep, given that I select my...

Syarikat Serimas Bhd sales data as follows: November 2021 Disember 2021 January 2022 90,000 250,000 340,000 120,000 150,000 Cash sales Credit sales Total 400,000 270,000 390,000 550,000 1. The...

In a family of 4 females and few males, the average monthly consumption of rice per head is 12kg. If the average monthly consumption per head is 10 kg for females and 16 kg for males, find the number...

Total taxes owed, against which total deposits are compared, are reported on which line of Form 9 4 1 ? Answer: A . Line 2 B . Line 1 2 C . Line 1 3 D . Line 1 4

State the statute of limitations for transactions involving: a. Fraud (e.g., failure to file a tax return) b. Disallowance of tax deduction items c. The omission of rental income equal to greater...