Stephanie's utility function is given by U = W^1/2where W is the value of her house. Her house is currently valued at $105,625. She knows that her house will be destroyed by a tornado with probability .10 this spring. If it is hit, the rubble will be worth $15,625. What is her expected utility? A)375 B)355 C)255 D)305

Question

Quizplus · Accepted Answer

Expected utility is calculated as the weighted average of utility in each state, considering the probabilities. Here, it's 0.9 * (105625^0.5) + 0.1 * (15625^0.5) = 305.

Stephanie's Utility Function Is Given by U = W1/2 where

Stephanie's Utility Function Is Given by U = W^1/2where