A decision maker has a utility function for monetary gains x given by u(x)=(x+10000)^(.5) a) Show that
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A decision maker has a utility function for monetary gains x given by u(x)=(x+10000)^(.5)
a) Show that the person is indifferent between the status quo and
L: With probability 1/3, he or she gains 80,000
With probability 2/3, he or she loses 10,000
b) If there is a 10% chance that a painting valued at $10,000 will be stolen during the next year, what is the most (per year) that the decision maker would be willing to pay for insurance covering the loss of the painting?
Expert Answer:
uS0000 S0000 10000210000 10000 u1000 EU forL 90000a 300 100 We compare this ... View the full answer
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