The above figure shows Bob's utility function. He currently has ...

[jrubin]

Bob's utility function is shown in the above figure. He currently has $100 worth of property, but there is a 50% chance that all of it will be stolen. An insurance company offers to reimburse Bob for his loss if the money is stolen. What is the most that Bob would pay for such a policy? Explain.

[nothere]

A risky life leaves Bob with expected utility that could be had from a certain $30. Thus, he is willing to part with up to $70 to insure himself against such a loss.

[jrubin]

Thank you!

[nothere]

Always glad to help...

[Shelles]

The above figure shows Bob's utility function. He currently has $50 and is considering investing all of it in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0. Bob will
◦ definitely make the investment because the expected utility of the investment exceeds the utility of his $50.
◦ definitely make the investment because he is indifferent between having $50 and having an investment with an expected value of $50.
◦ definitely not make the investment because the expected utility of the investment is less than the utility of his $50.
◦ definitely not make the investment because he is indifferent between having $50 and having an investment with an expected value of $50.

[debra928]

definitely not make the investment because the expected utility of the investment is less than the utility of his $50.

[Shelles]

Thank you!

[debra928]

Always glad to help...