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Question: Consider the quadratic VNM utility function U(w) = a + bw + cw2.

(a) What restrictions if any must be placed on parameters a, b, and c for this function to display risk aversion?

(b) Over what domain of wealth can a quadratic VNM utility function be defined?

g = ((1/2) ο (w + h), (1/2) ο (w - h)),

Show that CE < E(g) and that P > 0.

(d) Show that this function, satisfying the restrictions in part (a), cannot represent preferences that display decreasing absolute risk aversion.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92288931

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