Question: Please explain solution. Ann's financial decisions are governed by a utility function U(x) = In[1 + (x/a)], where a = $4, 000 and x represents

Please explain solution.

Please explain solution. Ann's financial decisions are governed by a utility function

Ann's financial decisions are governed by a utility function U(x) = In[1 + (x/a)], where a = $4, 000 and x represents a possible increase in her wealth. She participates in a TV quiz show, and is asked a question. If she attempts to answer, she has a 50% probability of winning an amount ] = $10, 000, and a 50% probability of winning nothing at all. If she does not attempt the question she will be given some cash. Use the Principle of Expected Utility to determine the minimum amount of cash C that might dissuade her from attempting the question. (a) C = -aln (4 + he-x1/0) ~ $2, 457.03 (b) C = a[v1+ (x/a) - 1] ~ $3, 483.31 (correct) (c) C = zaln[1 + (x1/a)] ~ $2, 505.53 (d) None of the above

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