he following table showsthe relationship between your wealth and your utility.
Calculus For The Life Sciences
2nd Edition
ISBN:9780321964038
Author:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Chapter12: Probability
Section12.4: Discrete Random Variables; Applications To Decision Making
Problem 27E
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Question
the following table showsthe relationship between your wealth and your utility.
Transcribed Image Text:Wealth
Utility
11.0
10
15.0
15
19.0
20
22.0
25
25.0
30
27.0
35
29.0
You can invest in asset A, which offers a riskless payoff of $20,000 or in asset B, which
pays $15,000 with 40% probability and $25,000 with 60% probability. Which
investment do you choose?
O A A, because its utility is greater than the expected utility of B. which is 21.4.
O B. I am indifferent between A and B because I am risk neutral.
O C. B, because its expected utility of 22.6 is greater than the utility of A.
O D. B, because its expected utility of 23.4 is greater than the utility of A.
nsure
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