Suppose your friend Antonio offers you the following bet: He will flip a coin an
ID: 1222959 • Letter: S
Question
Suppose your friend Antonio offers you the following bet: He will flip a coin and pay you $2,000 if it lands heads up and collect $2,000 from you if it lands tails up. Currently, your level of wealth Is $6,000. The graph shows your utility function from wealth. Use the graph to answer the following questions. The shape of your utility function implies that you are a____individual, and, therefore, you___accept the wager because the difference in utility between C and A is___.the difference between A and B. Which of the following best explain why the pain of losing $2,000 exceeds the pleasure of winning $2,000 for risk-averse people' Check all that apply. The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar. The utility function of a risk-averse person exhibits the law of diminishing marginal utility. Risk-averse people are relatively wealthy and simply do not need the additional money. The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.Explanation / Answer
according to the graph utility function show diminishing marginal utility for further units of wealth. I will gain $2000 which give me 5 utils. if i will loose $2000 that reduces my utility 10 utils. so i will not accept the bet.
The shape of my utility function implies that i am a risk averser individual, and therefore i do not accept the wager because difference in utility betwewn C and A is greater than the difference between A and B.
question No 2
The utility function of risk-Averse person exibits the law of diminishing marginal utility.
The more wealth that risk -averse people have , the less satisfaction they receive from an additional doller.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.