Compute the certainty equivalent of his bet. calculate the, Ask an Expert

Economics

Richard Risky bets some money on the result of a tennis game. If he wins his bet, he will get 200€ and if he looses his bet, he will go home with only 20€. The probability of winning his bet is ? and the probability of losing his bet is ?. His utility function is given by u(x) = x4/3 .

a) Is Richard Risky risk-averse?

b) Compute the certainty equivalent of his bet!

c) Calculate the Arrow-Pratt measure of absolute and relative risk aversion!

d) Compute Richard Risky's risk premium! Why is it difficult to model agents with

Richard's risk attitude in an economic context?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9221363

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