Consider a person with utility function u(w)=(w)^(1/2) .This person can participate in a gamble in which she wins 15 with probability 0.5 or loses 9 with probability 0.5? (a) What initial value of wealth would make this person indifferent between accepting the gamble and not accepting the gamble? Provide algebraic solution only. (b) Suppose that his wealth is two times higher than the one found in (a). Do you expect this person to accept or reject the gamble found in (a)? You can verify your answer with the calculations of expected utility but no points will be awarded for these calculations. You are expected to provide an explanation for the result! (с) Do you expect the same result as in (b) for the agent with utility function u(w)=aw- 0.5w^(2) , assuming that a is big enough to guarantee positive marginal utility? You can verify your answer with the calculations of expected utility but no points will be awarded for these calculations. You are expected to provide an explanation for the result!

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The following problem relates to a gambling decision where a comparative utility study is conducted ... View the full answer