A subject in an experiment is given a gamble with a 50% chance of $36 and...

 

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A subject in an experiment is given a gamble with a 50% chance of $36 and a 50% chance of $0. (a) What is the expected value of this gamble. (b) Assuming expected utility is the correct model, write down an expression for the subjects expected utility. (c) Write the expression you would solve for C, the subjects' certainty equivalent. Hint: invert the utility function. (d) Suppose a subject reported a certainty equivalent for this gamble of 20. Is this subject risk averse, risk neutral or risk loving? Explain. (e) Assume individuals have utility u(x) = r. Suppose the subject reported a certainty equivalent of C = 16. What would you calculate as the value of the parameter ? A subject in an experiment is given a gamble with a 50% chance of $36 and a 50% chance of $0. (a) What is the expected value of this gamble. (b) Assuming expected utility is the correct model, write down an expression for the subjects expected utility. (c) Write the expression you would solve for C, the subjects' certainty equivalent. Hint: invert the utility function. (d) Suppose a subject reported a certainty equivalent for this gamble of 20. Is this subject risk averse, risk neutral or risk loving? Explain. (e) Assume individuals have utility u(x) = r. Suppose the subject reported a certainty equivalent of C = 16. What would you calculate as the value of the parameter ?

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Answer Explanation 36 1 The Payis P 4 Expected vahe this gample EPE 18 3D D Let ucw be tue ... View the full answer