History Bookmarks Window Help 99% , courses.aplia.com Suppose Stelios\'s current

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History Bookmarks Window Help 99% , courses.aplia.com Suppose Stelios's current wealth is $400, and he is debating a trip to Las Vegas. Although he doesn't have a lucky number, his most recent interest is a new game similar to roulette, in which he places money on even every time. Suppose that there is a 50% chance that the ball will land on even and his wealth will increase to $700, but there is also a 50% chance that the ball will land on odd and his wealth will decrease to $100. The following graph shows Stelios's utility curve as a function of wealth, U(W). All of the black points (X symbols) on the graph represent various points along this curve. For example, at $400, Stelios enjoys utility of 56 utils. That is U(400) 56 utils. Tool tip: Mouse over the points on the graph to see their coordinates. UTILITY (URiLS 100 90 80 70 60 50 40 30 20 10 utwi 0 100 200 300 400 500 600 700 800 900 1000 WEALTH (Dollars If Stelios takes the gamble, the expected value of his wealth is . Because his utility at this level of wealth is higher than his expected utility from taking the gamble, you know that he must be risk loving risk averse

Explanation / Answer

Expected value of wealth. = .5*700+.5*100 = 350+50 = 400

lower

Risk averse

Expected Utility = 0.5*U(700)+0.5*u(100)

last question not visisble.

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