ule_item_id=5186850vas UCLA Undergraduate Ed... wwAlternative formatsUIT EmailuclaKB20. Individuals with initial wealth $100 and different preferences over risk are consideringpurchasing a lottery ticket for $10. The lottery pays $20 with 50% probability, andnothing otherwise. Consider the following statements:(a) No statement is correct.(b) Only I is correct.(c) Only II is correct.(I) The certainty equivalent of this gamble is higher for the risk-averse individuals,compared to risk-neutral individuals.UCLA Campus Dir...(II) The expected wealth after purchasing the ticket is higher than without purchasingit.(III) The certainty equivalent of purchasing the lottery ticket is $100 for risk-neutralindividuals.9(d) Only III is correct.(e) More than one statement is correct.8Support staff by S... UCLA Evaluation CaInformation for the next two questions: In a used car market, there are 10 identicalbuyers, each wanting to buy one car. There are 10 non-identical sellers indexed by i EDIIF9Page < 9F10> of 16OF11

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Individuals with initial wealth $100 and different preferences over risk are considering purchasing a lottery ticket for $10. The lottery pays $20 with 50% probability, and nothing otherwise. Consider the following statements: (I) The certainty equivalent of this gamble is higher for the risk-averse individuals, compared to risk-neutral individuals. (II) The expected wealth after purchasing the ticket is higher than without purchasing it. (III) The certainty equivalent of purchasing the lottery ticket is $100 for risk-neutral individuals. (a) No statement is correct. (b) Only I is correct. (c) Only II is correct. 9 (d) Only III is correct. (e) More than one statement is correct. 10 identical

Individuals with initial wealth $100 and different preferences over risk are considering purchasing a lottery ticket for $10. The lottery pays $20 with 50% probability, and nothing otherwise. Consider the following statements: (I) The certainty equivalent of this gamble is higher for the risk-averse individuals, compared to risk-neutral individuals. (II) The expected wealth after purchasing the ticket is higher than without purchasing it. (III) The certainty equivalent of purchasing the lottery ticket is $100 for risk-neutral individuals. (a) No statement is correct. (b) Only I is correct. (c) Only II is correct. 9 (d) Only III is correct. (e) More than one statement is correct. 10 identical

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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. Suppose that Janet's and Sam's utility of income is given by u(x) = In x and the initla wealth of each one of them is equal to w = 4. Which of the following statements is true? O a. Both agents prefer Sam's solutions to Janet's solution. b. Both agents prefer Janet's solutions to Sam's solution. The agents are indifferent between Janet's solutions to Sam's solution.…
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You need to hire some new employees to staff your startup venture. You know that potential employees are distributed throughout the population as follows, but you can't distinguish among them: Employee Value $30,000 $49,000 $68,000 $87,000 Probability 0.25 0.25 0.25 0.25 The expected value of hiring one employee is $ Suppose you set the salary of the position equal to the expected value of an employee. Assume that employees will not work for a salary below their employee value. The expected value of an employee who would apply for the position, at this salary, is $ Given this adverse selection, your most reasonable salary offer (that ensures you do not lose money) is
The value of a successful project is $420,000; the probabilities of success are 1/2 with good supervision and 1/4 without. The manager is risk neutral, not risk averse as in the text, so his expected utility equals his expected income minus his disutility of effort. He can get other jobs paying $90,000, and his disutility for exerting the extra effort for good supervision on your project is $100,000. (a) Show that inducing high effort would require the firm to offer a compensation scheme with a negative base salary; that is, if the project fails, the manager pays the firm an amount stipulated in the scheme. (b) How might a negative base salary be implemented in reality? (c) Show that if a negative base salary is not feasible, then the firm does better to settle for the low-pay, low-effort situation.
Any risk-averse individual would always (Select all that applies) a) take a 30% chance at $100 rather than a sure $20. b) take a sure $20 rather than a 30% chance at $100. c) take a sure $2 rather than a 50% chance at $5 and a 50% chance at losing $1. d) take a 50% chance at $5 and a 50% chance at losing $1 rather than a sure $1.
Setup from Question 1) An expected utility maximiser owns a car worth £60 000 and has a bank account with £20 000. The money in the bank is safe, but there is a 50% probability that the car will be stolen. The utility of wealth for the agent is u(y) = In(y) and they have no other assets. Question 2)
Natalie entered a raffle recently and never checked her tickets. She has recently learned the exact number of the other unchecked tickets. Based on this information she knows that there is a 30% chance that she has won the raffle prize of $1,600. If she does not win the raffle her wealth will be zero. Natalie has a von Neumann- Morgenstern utility such that she wants to maximize the expected value of cvc, where cc is total wealth. What is the minimum price for which Natalie would sell her raffle tickets? $
Thelma is indifferent between $100 and a bet with a 0.6 chance of no return and a 0.4 chance of $200. If U(0) = 20 and U(200) = 220, then U(100) = :
Q1) An expected utility maximiser owns a car worth £60000£60000 and has a bank account with £20000£20000. The money in the bank is safe, but there is a 50%50% probability that the car will be stolen. The utility of wealth for the agent is u(y)=ln(y)u(y)=ln⁡(y) and they have no other assets.
An individual has a utility function U(W) = VW, where W is the level of wealth. They have been offered a gamble with a payout of £170 with a probability of 0.74 and a payout of £49.7 with a probability of 1-0.74. The Certainty Equivalent of this gamble is: Answer:
Consider the following game, with a risk-neutral principal with preferences π = q - w hiring an agent with preferences U = √w-e.. The agent's reservation utility is given by Ū = 2, and the agent can choose between an effort level of 0 or an effort level of 10. Output is either 0 or 400 and follows the following probability distribution, a function of effort level and some uncertain factor: e=0 e=10 Probability (q=0) Probability (q=400) 0.6 0.4 0.9 0.1 What would the contract look like if the principal tried to push the wages when q=0 to zero? Would the principal want to do this? Explain.
Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?