Tom and Jerry are contestants on Jeopardy. Tom is leading with an accumulation of $12000, while Jerry trails closely at $10000. In the final segment of the show, contestants must wager an amount not exceeding their current accumulation that they will answer the last question of the night correctly. Wagers are made before the question is revealed. If the contestant answers correctly, they have their wager added to their accumulation. Otherwise, it is deducted. Jerry is a game show master and expects to answer correctly with 90% certainty. Tom is less experienced and only has a 55% chance. Their utilities of wealth are given by u™ (x) = xỉ and u' (x) = 50xi 3 a) How much should Tom wager to maximise his expected utility? b) How much should Jerry wager to maximise his expected utility? c) In expectation, how much money the expected winner of the show is going to win?

Tom and Jerry are contestants on Jeopardy. Tom is leading with an accumulation of $12000, while Jerry trails closely at $10000. In the final segment of the show, contestants must wager an amount not exceeding their current accumulation that they will answer the last question of the night correctly. Wagers are made before the question is revealed. If the contestant answers correctly, they have their wager added to their accumulation. Otherwise, it is deducted. Jerry is a game show master and expects to answer correctly with 90% certainty. Tom is less experienced and only has a 55% chance. Their utilities of wealth are given by u™ (x) = xỉ and u' (x) = 50xi 3 a) How much should Tom wager to maximise his expected utility? b) How much should Jerry wager to maximise his expected utility? c) In expectation, how much money the expected winner of the show is going to win?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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