Question: 5 Risk Imagine Alex has the concave utility function U(W) : VW. Imagine Alex is about to graduate from UC Davis with an economics

5 Risk Imagine Alex has the concave utility function U(W) : VW.

5 Risk Imagine Alex has the concave utility function U(W) : VW. Imagine Alex is about to graduate from UC Davis with an economics degree. When she graduates, she will either get a job paying $2500 per month (being a private economics tutor) or $10000 per month (coding game theory games in C++). She believes the probability of getting each job is 50% and she will only get one job. 5.1 What is Alex's expected utility? 5.2 What is the variance of Alex's expected utility? 5.3 What risk premium would Alex pay to avoid bearing this risk? W Now imagine Jamie has the linear utility function U(W) = and she has the same job prospects as Alex. 100 5.4 What is Jamie's expected utility? 5.5 What is the variance of Jamie's expected utility? 5.6 What risk premium would Jamie pay to avoid bearing this risk? 5.7 Who is more risk averse Alex or Jamie?

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51 Income in case of tutor2500 Probability of being a tutorp050 Utility if Alex is a tutorU250025000... View full answer

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