-Ashton has the utility of wealth curve shown in the above figure. He owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless driver and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. What is Ashton's expected utility?
A) 100
B) 30
C) 70
D) zero

Question

-Ashton has the utility of wealth curve shown in the above figure. He owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless driver and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. What is Ashton's expected utility?
A) 100 
B) 30 
C) 70 
D) zero

Quizplus · Accepted Answer

Ashton's expected utility is calculated by considering the probability of having an accident and the utility of wealth in each scenario. With a 30% chance of an accident (utility of zero) and a 70% chance of no accident (utility of 100), the expected utility is 0.3 * 0 + 0.7 * 100 = 70.

-Ashton Has the Utility of Wealth Curve Shown in the Above