Suppose you are asking two people, Oscar and Mildred, who gave the following responses to lottery...

 

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Suppose you are asking two people, Oscar and Mildred, who gave the following responses to lottery questions: Given a 50-50 chance between the Lottery outcome #1 and Lottery outcome #2, Oscar stated that he found it equivalent to the dollar value in the third column, and Mildred stated that she found it equivalent to the dollar value in the last column. All amounts are in dollars. Lottery outcome1 300 2500 Lottery Outcome 2 -150 -1250 Up .25 Oscar 0 You will solve a problem using the utility function for each person. Assume that each person has a risk-averse exponential utility function. $1015.75 $4200 Suppose that Oscar and Mildred are each offered a choice of investments for $1000: A CD paying 3% per year, a bond fund, and a stock fund. The bond and stock fund pay as shown after 1 year: Stock Market is: Probability: Bond Fund Stock Fund CD Mildred Same .6 $1042.50 $1125 1030 0 Down .15 $1030.25 $250 a. What is the best investment for Oscar? What is his expected utility? b. What is the best investment for Mildred? What is her expected utility? Suppose you are asking two people, Oscar and Mildred, who gave the following responses to lottery questions: Given a 50-50 chance between the Lottery outcome #1 and Lottery outcome #2, Oscar stated that he found it equivalent to the dollar value in the third column, and Mildred stated that she found it equivalent to the dollar value in the last column. All amounts are in dollars. Lottery outcome1 300 2500 Lottery Outcome 2 -150 -1250 Up .25 Oscar 0 You will solve a problem using the utility function for each person. Assume that each person has a risk-averse exponential utility function. $1015.75 $4200 Suppose that Oscar and Mildred are each offered a choice of investments for $1000: A CD paying 3% per year, a bond fund, and a stock fund. The bond and stock fund pay as shown after 1 year: Stock Market is: Probability: Bond Fund Stock Fund CD Mildred Same .6 $1042.50 $1125 1030 0 Down .15 $1030.25 $250 a. What is the best investment for Oscar? What is his expected utility? b. What is the best investment for Mildred? What is her expected utility?

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