solve problem 14.13

14.12. Assess your utility function in three different ways. a. Use the certainty-equivalent approach to assess your utility func- tion for wealth over a range of $100 to $20,000. b. Use the probability-equivalent approach to assess U($1,500), U($5,600), U($9,050), and U($13,700). Are these assessments consistent with the assessments made in part a? c. Use the trade-off method to assess your utility function for values ranging from $100 to $20,000. Plot the assessments from parts a, b, and c on the same graph and compare them. Why do you think they differ? Can you identify any biases in your assessment process? 14.13. Assess your risk tolerance (R). Now rescale your exponential utility functionthe one you obtain by substituting your R value into the exponential utility functionso that U($100) = 0 and U($20,000) = 1. That is, find constants a and b so that a +b(1 - e -100/R) = 0 and a+b(1 - e -20,000/R) = 1. Now plot the rescaled utility function on the same graph with the utility assessments from Problem 14.12. How do your assessments compare