Billy Pigskin from your workbook has a von Neumann-Morgenstern utility function U(c)= c^1/2.If Billy is not injured this season, he will receive an income of $25 million.If he is injured, his income will be only $10,000.The probability that he will be injured is .1 and the probability that he will not be injured is .9.His expected utility is A)100,000. B)9,020. C)between 24 million and 25 million. D)4,510. E)18,040.

Question

Quizplus · Accepted Answer

Billy's expected utility is calculated as the weighted average of the utility in each state, considering the probabilities: 0.9 * (25,000,000)^0.5 + 0.1 * (10,000)^0.5 = 4,510.

Billy Pigskin from Your Workbook Has a Von Neumann-Morgenstern Utility