Question: In Subjective probability and utility. Assuming that U is increasing and absolutely continuous, consider the following experiment: 1. You specify an amount a, then observe

In Subjective probability and utility. Assuming that U is increasing and absolutely continuous, consider the following experiment: 1. You specify an amount a, then observe random value Y . 2. If Y a, you receive Y currency units.

3. If Y < a, you receive a random amount X with known distribution (independent of Y ). Show that we should choose a such that U (a) = E[U (X)]

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