Higher expected utility than envelope

Assignment Help Business Economics

Reference no: EM131004547

You are shown four envelopes. Envelope A contains $1,500; envelopes B, C and D contain uncertain amounts of money but with the following probabilities: Envelope B -- $5,000 with a 10 percent probability, $1,500 with an 89 percent probability, and $50 with a one percent probability. Envelope C -- $1,500 with an 11 percent probability and $50 with an 89 percent probability. Envelope D -- $5,000 with a 10 percent probability and $50 with a 90 percent probability. Show mathematically that if envelope A has a higher expected utility than envelope B, then it must be true that envelope C has a higher expected utility than envelope D. (Note: For a given value of M, U(M) is a fixed but unknown number; DO NOT assume U(M) = M!!)

Reference no: EM131004547

Questions Cloud

Competing yields are expected to change : How much would you pay for a perpetual bond that pays an annual coupon of $80 per year and yields on competing instruments are 20%? You would pay ___? If competing yields are expected to change to 12?%, what is your expected capital gain? (or loss)?

Pricing strategies of firms in various market structures : Predatory acts of firms are generally against the law in the United States. Specifically in terms of pricing strategies of firms in various market structures, however, it is possible for competing firms to work together to determine a solution benefi..

Competition over time presents number of problems for firm : The issue of competition over time presents a number of problems for a firm. Based on your reading, additional research for this question, and personal experience, what do you believe is the most effective way a firm can compete over time?

Higher expected utility than envelope : You are shown four envelopes. Envelope A contains $1,500; envelopes B, C and D contain uncertain amounts of money but with the following probabilities: Envelope B -- $5,000 with a 10 percent probability, $1,500 with an 89 percent probability, and $50..

The difference between playing a board game : The difference between playing a board game and playing a video game is the a) eliminatiion of free riders b) technology of the video game c) involvement of fewer rivals or d) involvement of free rider

Approximate yield to maturity on discount bond : A U.S. Treasury bill is an example of a simple loan, coupon bond, fixed-payment loan, or discount bond? The estimated current purchasing price of a discount bond with a face value of ?$2000 and a yield to maturity of 11% is____ ? What is the approxim..

First define moral hazard and provide a specific example : First define moral hazard and provide a specific example. Then, discuss what you believe should be the government's role pertaining to this subject.

Monopoly power comes from market acceptance : Consider the statement, “Monopoly power comes from market acceptance, not from a patent, a prettier product, a slick advertising campaign, or anything else. So rather than spend your time in court, you should be out there drumming up business.” Do yo..

User Account

All Pages