Suppose that an individual is just willing to accept a gamble to win or lose $1000 if the probability of winning is 0.6. Suppose that the utility gained if the individual wins is 100 utils. How much utility does one lose if one loses the gamble
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Suppose that an individual is just willing to accept a gamble to win or lose $1000 if the probability of
winning is 0.6. Suppose that the utility gained if the individual wins is 100 utils. How much utility does one lose if one loses the gamble?
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- You are considering two options for your next family vacation. You can visit Disney World or Chicago. Your utility from Disney World is 100 if the weather is clear, and 0 if it rains. Chicago is worth a utility of 70 if the weather is clear and a utility of 40 if the weather is rainy. Also assume that the chance of rain at Disney World is going to be 50% and the chance of rain in Chicago is 40%. As a utility maximizer, should you plan to go to Disney World or Chicago? (Explain using relevant equations)Consider Bob's decision problem: Sunny Cloudy Rainy Beach 2 3 2 Park 3 3 2 Mall -1 1 x Suppose the probability of Sunny is 0.25, the probability of Cloudy is 0.25, and the probability of Rainy is 0.5. What is the smallest value of x for which Mall is an expected utility maximiser? Round your answer to one decimal place (e.g. 0.5).QUESTION 5 A consumer has utility u (I) = √I and income $1,600. The cost of going to the doctor is $1,150, and the cost of going to the gym is $150. If the consumer goes to the gym, the probability of getting sick is 20%; if she does not go to the gym, the probability of getting sick is 80%. When sick, the consumer must go to the doctor. An insurance company is offering a health insurance plan with an insurance premium of $230 and a co-pay of $110 (that is, the consumer must pay the $110 if she goes to the doctor). a) The consumer's expected utility from purchasing this insurance and going to the gym is b) The consumer's expected utility from purchasing this insurance and not going to the gym is c) In this market, the $110 copay ✓ QUESTION 6 A salesperson is trying to sell ca Given her effort e, with probabili The dealership pays her a bonu a) Given the bonus b, the salesp b) Suppose the dealership pays *Select Answer* 34.6061 35.7999 37.0135 43.0338 42.4303 46.2601 fixes the adverse…
- Ann can finish a project either this week or next week. The delayed rewards are 10 in either case. (The project can be done only once or not at all).Next week is busy and the cost of finishing the project are lower this week. The immediate costs are 4 this week and 6 next week. Ann has a quasi-hyperbolic utility with δ= 1 and β <1. Imagine that Anndoes not finish the project this week. Then she should finish it next week A) if β >0.6; (B) if β >0.4; (C) only if β= 1; (D) for any β.John is a farmer with $225 of wealth. He can either plant corn or beans. If he plants corn, John earns an income of $675 if the weather is GOOD and $0 if the weather is BAD. If he plants beans, John earns an income of $451 under both GOOD and BAD weather. The probability of GOOD weather is 0.7. The probability of BAD weather is 0.3. John's utility function is u(C) = 5VC , where C is the value of consumption. Use this information to fill out the table below. (Don't forget to include the value of wealth when you compute consumption!). The PDF will round all typed numbers to two decimals; However, you should use all decimals when computing your answers. %3D Plant Corn Plant Beans Expected value of consumption Expected value of utility Certainty Equivalent Risk Premium 9. What type of risk preferences does John have? Mae owns an insurance company in a nearby town and has decided to offer conventional crop insurance to corn farmers in the area. Assume that Mae has perfect information and…John is deciding whether to exert effort (e = 1) to avoid an accident at work or not exert any effort (e = 0). If e = 1, the probability of an accident is 0.5. If e = 0, the probability of an accident is 1. John's income without the accident is $100. In case of an accident, medical expenses will be $64. John utility of income is VI. The cost of effort, C(e), is 0 if effort is e = 0 and 1 if effort is e = 1. John's utility function is u(l, e) 3D VI — С(e). %3D (a) What are the expected utility values that John would face when he exerts effort and when he does not exert effort? Based on your calculations, should he exert effort? Briefly explain the intuition behind his decision in one or two sentences. Now suppose there is a risk neutral insurance company. Suppose the insurance company cannot monitor whether John exerts effort or not. The insurance company considers two plan contracts. Contract Plan A: Premium: p = $36. Payout in the event of accident: d = $64 Contract Plan B: Premium: p…
- John is deciding whether to exert effort (e = 1) to avoid an accident at work or not exert any effort (e = 0). If e = 1, the probability of an accident is 0.5. If e = 0, the probability of an accident is 1. John's income without the accident is $100. In case of an accident, medical expenses will be $64. John utility of income is VI. The cost of effort, C(e), is 0 if effort is e = 0 and 1 if effort is e = is u(1, e) = VI – C(e). 1. John's utility function (a) What are the expected utility values that John would face when he exerts effort and when he does not exert effort? Based on your calculations, should he exert effort? Briefly explain the intuition behind his decision in one or two sentences. Now suppose there is a risk neutral insurance company. Suppose the insurance company cannot monitor whether John exerts effort or not. The insurance company considers two plan contracts. Contract Plan A: Premium: p = $36. Payout in the event of accident: d = $64 Contract Plan B: Premium: p =…John is a farmer with $225 of wealth. He can either plant corn or beans. If he plants corn, John earns an income of $675 if the weather is GOOD and $0 if the weather is BAD. If he plants beans, John earns an income of $451 under both GOOD and BAD weather. The probability of GOOD weather is 0.7. The probability of BAD weather is 0.3. John’s utility function is U(c) = 5√c , where c is the value of consumption. Mae owns an insurance company in a nearby town and has decided to offer conventional crop insurance to corn farmers in the area. Assume that Mae has perfect information and can write and enforce an insurance contract that requires the farmer to plant corn. Here’s how the insurance contract works. At the beginning of the year, the corn farmer pays an insurance premium of $202.5. If the weather is GOOD, Mae makes no payment to the farmer. If the weather is BAD, Mae makes an indemnity payment of $675 to the farmer. a. If a farmer buys this insurance contract,what is Mae’s expected…Ann can finish a project either this week or next week. The delayed rewards are 10 in either case. (The project can be done only once or not at all).Next week is busy and the cost of finishing the project are lower this week. The immediate costs are 4 this week and 6 next week. Ann has a quasi-hyperbolic utility withδ= 1 andβ <1. Imagine that Anndoes not finish the project this week. Then she should finish it next week (A) ifβ >0.6; (B) ifβ >0.4; (C) only ifβ= 1; (D) for anyβ.11. Suppose that β= 0.5 and Ann correctly anticipates her choice next week. Then she should finish the project (A) this week; (B) next week; (C) never; (D) not enough information. can you help me with the bolded question? thank you!
- Chris Traeger is trying to decide whether or not to purchase health insurance. Chris knows that if he is healthy, his wealth will be $2,000 this year. However, if he gets sick his wealth will only be $500. Chris knows the probability of getting sick is 40%. His utility function is written below. U = (2) What is utility if the individual purchases insurance at the actuarially fair price? 25.29 utils 26.46 utils 31.62 utils 18.97 utilsYou are trying to decide between rescuing a puppy or an older dog. You decide to try to assign some numbers to your preferences so you can compare options. You estimate that your utility for a dog that will chew your furniture is 0.1 and your utility for a dog that can go on hikes with you is 0.8. You expect that a puppy will have an 70% chance of chewing your belongings and a 90% chance of going on hikes. What is your expected utility for getting the puppy?Sanjay won a poker game against his friends. Now he has to choose between $600 (the winnings) and the chance to play a new game. In this new game, Sanjay has a 50% chance of winning nothing and a 50% chance of winning $1000. The following graph presents the utility function of Sanjay with respect to money: 1. By how much money would his winnings need to increase or decrease so that Sanjay isindifferent between the $600 and the new game? At a different table, Juan wins $800 in a blackjack game. Similarly, he has to choose between $800 or the chance to win a new game. In this game, Juan has a 45% chance of winning nothing and a 55% chance of winning $1000. The following graph presents the utility function of Juan with respect to money: 2. By how much money would his winnings need to increase or decrease so that Juan is indifferent between the $800 and the new game? Please enter a positive number for an increase or a negative number for a decrease.