Prospect Y = ($6, 0.25 ; $15, 0.75) If Will's utility of wealth function is given by u(x)=x0.25, what is the value of CE(Y) for Will? (In other words, what is Will's certainty equivalent for prospect Y?)
Prospect Y = ($6, 0.25 ; $15, 0.75) If Will's utility of wealth function is given by u(x)=x0.25, what is the value of CE(Y) for Will? (In other words, what is Will's certainty equivalent for prospect Y?)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Prospect Y = ($6, 0.25 ; $15, 0.75)
If Will's utility of wealth function is given by u(x)=x0.25, what is the value of CE(Y) for Will? (In other words, what is Will's certainty equivalent for prospect Y?)
(The certainty equivalent represents the maximum amount a person would be willing to pay to acquire a risky prospect, and equivalently, the lowest price for which they would be willing to sell a risky prospect if they already owned it)
(Note: The answer may not be a whole number; please round to the nearest hundredth)
(Note: The numbers may change between questions, so read carefully)
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