What is the expected wealth and utility if expected wealth

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Reference no: EM131102402

You and your friend are watching a Baseball game, the teams are X and Y, assume you agreed to give your friend $ 44 if his/her team “Y” wins, also he/she agreed to give you $ 44 if your team “ X” wins, probability of team X wins = probability of team Y wins = 0.5, and your initial wealth is W=$ 100. Answer the following:

1. If E(W)= (W)^(1/2), what is your utility if team X wins, if team Y wins, and what is the expected utility of wealth EU(W)?

2. What is the expected wealth E(W), and what is the utility if expected wealth U(E(W))?

3. Compare EU(W) with U(E(W))?

4. Draw a diagram, and show the utility, expected utility, wealth, and expected wealth?

5. Repeat the steps 1 to 4 if E(W)=W^2and if E(W)=W?

Reference no: EM131102402

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