Lost: a decision maker’s risk attitude toward monetary gains or losses...
Good afternoon,
I'm working on some practice sets, and I have hit a roadblock. My professor had a short except from a video entry giving a very basic utility function problem, along with a paragraph devoted to the topic in our textbook. However, he elevated the level of difficulty with several similar practice problems. I can't wrap my head around this. His example was easier as it compared a sure thing ($500) to two other uncertain higher value outcomes. Any guidance would be greatly appreciated.
Sample style problem below:
Suppose that a decision maker’s risk attitude toward monetary gains or losses x given by the utility function U(x) = (10,000 + x)^0.5. Suppose that a decision maker has the choice of buying a lottery ticket for $1, or not. Suppose that the lottery winning is $500,000, and the chance of winning is one in a thousand. True of false: The decision maker should buy the lottery ticket.
Good afternoon,
I'm working on some practice sets, and I have hit a roadblock. My professor had a short except from a video entry giving a very basic utility function problem, along with a paragraph devoted to the topic in our textbook. However, he elevated the level of difficulty with several similar practice problems. I can't wrap my head around this. His example was easier as it compared a sure thing ($500) to two other uncertain higher value outcomes. Any guidance would be greatly appreciated.
Sample style problem below:
Suppose that a decision maker’s risk attitude toward monetary gains or losses x given by the utility function U(x) = (10,000 + x)^0.5. Suppose that a decision maker has the choice of buying a lottery ticket for $1, or not. Suppose that the lottery winning is $500,000, and the chance of winning is one in a thousand. True of false: The decision maker should buy the lottery ticket.