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Author Question: The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% ... (Read 517 times)

jrubin

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Reply #40 on: Jun 18, 2019


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.
Microeconomics ¦ Perloff ¦ 8th Edition
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nothere

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Reply #41 on: Jun 18, 2019
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

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Reply #42 on: Jun 18, 2019
Thank you!


nothere

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Reply #43 on: Jun 18, 2019
Always glad to help...


Shelles

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Reply #44 on: Jun 18, 2019


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

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Reply #45 on: Jun 18, 2019
definitely not make the investment because the expected utility of the investment is less than the utility of his $50.


Shelles

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Reply #46 on: Jun 18, 2019
Thank you!


debra928

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Reply #47 on: Jun 18, 2019
Always glad to help...


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