Portia has waited a long time for her ship to come in, and she has concluded that it will arrive today with probability 1/4.If it does come, she will receive $16.If it doesn't come in today, it never will and she will have zero wealth.She has a von Neumann-Morgenstern utility function equal to the square root of her total income.What is the minimum price at which she would sell the rights to her ship?
A)$1
B)$2
C)$2.50
D)$4
E)None of the above.

Question

Quizplus · Accepted Answer

The Answer of Portia has waited a long time for her ship to come in, and she has concluded that it will arrive today with probability 1/4.If it does come, she will receive $16.If it doesn't come in today, it never will and she will have zero wealth.She has a von Neumann-Morgenstern utility function equal to the square root of her total income.What is the minimum price at which she would sell the rights to her ship?
A)$1
B)$2
C)$2.50
D)$4
E)None of the above.

Portia Has Waited a Long Time for Her Ship to Come