Figure 28-1 The following figure shows a utility function for Bo. UTILITY 600 840 1000 WEALTH (Dollars) Refer to Figure 28-1, which depicts Bo's utility function. Assume that Bo currently has a wealth level of $840. If presented with a gamble that has a 50% chance of increasing his wealth to $1080 and a 50% chance of decreasing it to $600, would Bo choose to take the gamble? The information provided is insufficient to determine Bo's decision regarding the gamble. Bo's decision would depend on the specific details of the gamble and his current financial situation. Yes, Bo would take the gamble because the potential increase in wealth outweighs the potential decrease. No, Bo would not take the gamble because he is risk-averse and prefers certainty over uncertainty.

Janet's broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w + 4 or w – 2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Which of the following statements is true? O a. There are risk averse expected utility maximisers who would prefer Janet's idea to Sam's idea. O b. Any expected utility maximiser whose utility is a strictly increasing function of wealth would prefer Sam's idea to Janet's idea. O c. Any risk averse expected utility maximiser would prefer Sam's idea to Janet's idea. O…

Find the Pratt - Arrow risk - aversion function for a utility function U(W) = log(0.5-W + 500), where W is the amount of wealth in €. Suppose that an investor's wealth is subject to outcomes -800 €, 500 €, 500 € and 1, 000 € which affect the initial amount of 2,500 € with probabilities of their occurrence 40%, 15%, 15% and 30%, respectively. a) Using the Taylor approximation to certainty equivalent, calculate an approximate expected utility value. b) Calculate the certain equivalent of the investor's uncertain wealth. Interpret.

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