Compute the RELATIVE risk aversion measure rr(W) of the following utility function (the form of which depends on the value of y. wl-Y –1 y 20,y #1 1-7 In W y =1 Is rr(W) dependent on W?
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- When the second order derivative of a function is greater than zero than the agent is risk lover. question; Asses the risk attitude of an agent represented by the expected utility function u(x)= 2x2-5. However my course material writes that this agent is risk neutral because it is affine. My question is that whys is this so despite the fact that the second order derivative is '4' which is >0. Kindly explain this to me with complete steps.Compute the RELATIVE risk aversion measure rr(W) of the following utility function (the form of which depends on the value of y. w-Y -1 y 20,y +1 1-7 In W y =1 Is rr(W) dependent on W?Becky is deciding whether to purchase an insurance for her home againtst burglary. the payoff for her is shown as follow: Net worth of her Net worth of her home: $ 20000 burglary(10%) Net worth of her Net worth of her home: $50000 burglary (90%) The insueance would cover all the loss from burlary and the insurance fee is $8000. Her utility funtion is given as u=w ^0.3 Should Beck purchase the insurance Explain.
- ayesha derives utility from travelling and outdoor dinning o weekends as given utility function U(t,d)=TD.the price of a day spent travelling is $160{Pt=160} and price of dining outdoor $200{Pd=200}.ayesha annual budget for this is $8000. find ayesha's utility maximizing choice of days travelling and dining outside. and alsoo find uutility level from consuming that bundles .show findings graphicallySuppose that an individual is just willing to accept a gamble to win or lose $1000 if the probability ofwinning 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?Cost-Benefit Analysis Suppose you can take one of two summer jobs. In the first job as a flight attendant, with a salary of $5,000, you estimate the probability you will die is 1 in 40,000. Alternatively, you could drive a truck transporting hazardous materials, which pays $12,000 and for which the probability of death is 1 in 10,000. Suppose that you're indifferent between the two jobs except for the pay and the chance of death. If you choose the job as a flight attendant, what does this say about the value you place on your life?
- Q1. A farmer believes there is a 50-50 chance that the next growing season will be abnormally rainy. His expected utility function has the form Expected utility = 0.5lnYNR + 0.5lnYR Where and represent the farmers income in the state of ‘normal rain’ and ‘rainy’ respectively. Suppose the farmer must choose between two crops that promise the following income prospects Crop YNR YR Wheat $83,000 $10,000 Maize $83,000 $15000 What mix of wheat and maize would provide maximum expected utility to this farmer?1. A standard model of choice under risk is Expected Utility Theory (EUT) in which preferences over lotteries that pay monetary prizes (x₁, x2, ..., xs) with probabilities (P1, P2, ..., Ps) with Eps = 1 are represented by the function L S (a) What does it mean to say that a function represents the consumer's prefer- ences? Σpsu(xs) Choice 1 8=1 (b) State and briefly comment on the axioms required for the EUT representation. (c) Consider the following experiment of decision making under risk in which sub- jects are asked which lottery they prefer in each of the following two choices: Lottery B 0 with prob. 0.01 10 with prob. 0.89 50 with prob. 0.10 Lottery D Choice 2 Lottery A 0 with prob. 0 10 with prob. 1 50 with prob. 0 Lottery C 0 with prob. 0.90 10 with prob. 0 50 with prob. 0.10 Suppose that the modal responses are Lottery A in Choice 1 and Lottery D in Choice 2. Assume that utility of zero is equal to zero and illustrate why it is not possible to reconcile these experimental…If agent is preferences under uncertainty can be represented by the utility function u = 10x, then they can also be represented by the utility function u = 20x - 10. O True False
- Suppose Jimi has reference dependent preferences over guitars and money as in Tversky and Kahneman (1991). His utility functions are given below. Gains Gains 400 -2 -2 2 Guitars 2$ Losses Losses i-600 -2 What is the least amount of money Jimi is willing to accept to sell one of his guitars? (just enter a dollar amount, i.e., "10o0", not "$1000"3. The utility function is u(x, y) = √x+y. Suppose that 1) with probability 0.5, (I, Px, Py) (8, 2, 2) and 2) with probability 0.5, (I, Px, Py) = (8, 4, 8). Explain graphically whether an increase in x increases or decreases the riskiness of the utility gamble. U 6 5 4 3 2 1 0 0 0.25 0.5 0.75 1 1 1.25 1.5 1.75 28To go from Location 1 to Location 2, you can either take a car or take transit. Your utility function is: U= -1Xminutes -5Xdollars +0.13Xcar (i.e. 0.13 is the car constant) Car= 15 minutes and $8 Transit= 40 minutes and $4 What is your probability of taking transit given the conditions above? What is your probability of taking transit if the number of buses on the route were doubled, meaning the headways are halved? Remember to include units.