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Suppose there are 125 risk averse individuals, each with a $1 to invest in a project at t = 0.The project will yield $1 if liquidated at t = 1 and $2.20 if liquidated at t = 2.At t = 0, no individual knows what his type will be at t = 1.If he turns out to be type D, his utility taction for consumption will be while if he turns out to be type L, his utility for consumption will be .It is known at t = 0 that 40% of the individuals will type D and 60% type L at t = 1.
-Consider a case with no bank.Each individual invests in his own project.Each individual's expected utility will be

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Suppose there are 125 risk averse individuals, each with a $1 to invest in a project at t = 0.The project will yield $1 if liquidated at t = 1 and $2.20 if liquidated at t = 2.At t = 0, no individual knows what his type will be at t = 1.If he turns out to be type D, his utility taction for consumption will be while if he turns out to be type L, his utility for consumption will be .It is known at t = 0 that 40% of the individuals will type D and 60% type L at t = 1.
-Consider a case with no bank.Each individual invests in his own project.Each individual's expected utility will be

Quizplus · Accepted Answer

The expected utility is calculated by considering the probability of each type and the corresponding utility. With 40% being type D and 60% being type L, the expected utility is a weighted average of the utilities for each type.

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