(See Problem 11.) Wilfred's expected utility function is , where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂. Wilfred is offered a choice between getting a sure payment of $Z or a lottery in which he receives $2,500 with probability .40 or $6,400 with probability .60. Wilfred will choose the sure payment if A) Z 4,624 and the lottery if Z 3,562 and the lottery if Z 5,512 and the lottery if Z 6,400 and the lottery if Z 4,840 and the lottery if Z

Question

(See Problem 11.) Wilfred's expected utility function is , where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂. Wilfred is offered a choice between getting a sure payment of $Z or a lottery in which he receives $2,500 with probability .40 or $6,400 with probability .60. Wilfred will choose the sure payment if A) Z > 4,624 and the lottery if Z < 4,624. B) Z > 3,562 and the lottery if Z < 3,562. C) Z > 5,512 and the lottery if Z < 5,512. D) Z > 6,400 and the lottery if Z < 6,400. E) Z > 4,840 and the lottery if Z < 4,840.

Quizplus · Accepted Answer

The Answer of (See Problem 11.) Wilfred's expected utility function is , where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂. Wilfred is offered a choice between getting a sure payment of $Z or a lottery in which he receives $2,500 with probability .40 or $6,400 with probability .60. Wilfred will choose the sure payment if A) Z > 4,624 and the lottery if Z < 4,624. B) Z > 3,562 and the lottery if Z < 3,562. C) Z > 5,512 and the lottery if Z < 5,512. D) Z > 6,400 and the lottery if Z < 6,400. E) Z > 4,840 and the lottery if Z < 4,840.