Jessica’s utility is derived based on her income. Her utility function is given by U = I ^0.5 . Jessica is offered with a prize and the value of the prize is dependent on the result of rolling a pair of fair dice. If the rolling outcome is a 3, 6, 8 or 10, the value of the prize she receives is $400. Otherwise, Jessica will receive $100.

a. Show that the probability of rolling a 3, 6, 8 and 10, with a pair of fair dice, is 1/18, 5/36, 5/36, and 1/12, respectively.

b. What is the payoff that Jessica is expected to get from this prize?

c. What is the utility Jessica is expected to get from this prize?

d. If Jessica is offered a certain amount of $167 as an alternative prize, and she accepts this offer, she would not take part in rolling the dice. Will she still roll the dice or accept this offer?

e. What is the minimum certain amount of money that Jessica should be offered in order for her to refuse to roll the dice?

Answer rating: 100% (QA)

u I 5 a Now total combinations 6 x 6 36 Now 3 can be obtained as 2 1 1 2 so p... View the full answer