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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.
-Given the scenario in questions 32 and 33, what is the expected utility of each depositor at t = 0?

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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.
-Given the scenario in questions 32 and 33, what is the expected utility of each depositor at t = 0?

Quizplus · Accepted Answer

The expected utility at t = 0 can be calculated by considering the probabilities of being type D or L and their respective outcomes. Since 40% are expected to be type D and will liquidate at $1, and 60% are expected to be type L and will wait until t = 2 for $2.20, the expected utility combines these probabilities with the outcomes. However, without the specific utility functions for types D and L, we can't directly calculate the expected utility. The correct answer must be inferred based on the information given or further context, which is not provided in the question. Thus, the selection of choice C is based on the assumption that there's a mistake in the question as it doesn't provide enough information to calculate the expected utility directly.

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