-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob's expected wealth is
A) $0.
B) $50.
C) $75.
D) $100.

Question

-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob's expected wealth is
A) $0. 
B) $50. 
C) $75. 
D) $100.

Quizplus · Accepted Answer

Bob's expected wealth is calculated by taking the average of the two possible outcomes given the probabilities. Since there's a 50% chance of having $100 and a 50% chance of having $0 (if it's all stolen), the expected wealth is (0.5 * $100) + (0.5 * $0) = $50.

-The Above Figure Shows Bob's Utility Function