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Consider a person with an initial wealth level of 100 who faces a change to win 20 with probability 1/2 and to lose 20 with probability 1/2.

A. What is the expected value of the gamble? Is this gamble fair or better than fair?

B. If this person's utility function is given by U(X)=sqrt(X), will she accept this gamble?

C. If this person's utility function is given by U(X)=X, will she accept this gamble?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9498333

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