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Buck Columbus is thinking of starting a pinball palace near a large Midwestern university. Buck is an expected utility maximizer with a von Neuman-Morgenstern utility function, U(W) = 1ô€€€(6; 000=W) where W is his wealth. Buck's total wealth is $24,000. With probability .2 the palace will be a failure and he'll lose $18,000, so that his wealth will be just $6,000. With probability.8 it will succeed and his wealth will grow to $x. What is the smallest value of x that would be sucient to make Buck want to invest in the pinball palace rather than have a wealth of $24,000 with certainty?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9278114

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