How could you intuitively explain such behavior

Assignment Help Microeconomics

Reference no: EM131524522

Question: We discussed decreasing and constant risk aversion. Are there other possibilities? Think about this as you work through this problem. Suppose that a person's utility function for total wealth is

U(A) = 200A - A² for 0 ≤ A ≤ 100

where A represents total wealth in thousands of dollars.

a. Graph this preference function. How would you classify this person with regard to her attitude toward risk?

b. If the person's total assets are currently $10,000 should she take a bet in which she will win $10,000 with probability 0.6 and lose $10,000 with probability 0.4?

c. If the person's total assets are currently $90,000 should she take the bet given in part b?

d. Compare your answers to parts b and c. Does the person's betting behavior seem reasonable to you? How could you intuitively explain such behavior?

Reference no: EM131524522

Questions Cloud

What is the smallest amount for which he would sell the deal : Buying and selling prices for risky investments obviously are related to CEs. This problem, however, shows that the prices depend on exactly what is owned.

Which ratios measure a corporations liquidity : Which ratios measure a corporation's liquidity? What are some of the problems associated with using financial ratios?

Contractual provisions unfair or deceptive : (1) To what degree does the FTC have authority to question your business practices? (2) Are your clearly stated contractual provisions unfair or deceptive?

Describe what occurs when red blood cell is placed in water : Briefly describe what occurs when a red blood cell is placed in water (a hypotonic solution).

How could you intuitively explain such behavior : We discussed decreasing and constant risk aversion. Are there other possibilities? Think about this as you work through this problem.

Discuss the internal culture present within the organization : Evaluate Leadership Theory- Discuss the internal culture present within the organization. Be sure to utilize terms relative to organizational behavior.

Ways of balancing capacity available and load : What are the two ways of balancing capacity available and load? Which is preferred? Why?

Macro environmental analysis : You have to the research on company Nordstorm. first conduct an industry analysis (Porter, 1985) and a macro environmental analysis

Explain the potential benefits of learning about healthcare : Explain the primary potential benefits of learning about health economics related to government involvement in healthcare economics, financing, and delivery.

User Account

All Pages