correct Question 19 Imagine your utility is given by In(w), where w is the amount of wealth you have and "In" is the natural log function. You are offered the following game: a dealer will flip a fair coin. If it lands on heads, you will get $247, but if lands on tails, you will get $57. What is the most that you would be willing to pay to play this game? Hint: Think about the certainty equivalent. Enter your answer with one decimal point and NO dollar signs or commas (i.e., 30.4, not $30.38). The question will allow for slight rounding errors. 94.5

correct Question 19 Imagine your utility is given by In(w), where w is the amount of wealth you have and "In" is the natural log function. You are offered the following game: a dealer will flip a fair coin. If it lands on heads, you will get $247, but if lands on tails, you will get $57. What is the most that you would be willing to pay to play this game? Hint: Think about the certainty equivalent. Enter your answer with one decimal point and NO dollar signs or commas (i.e., 30.4, not $30.38). The question will allow for slight rounding errors. 94.5

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.7P

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Microeconomics Wilfred’s expected utility function is px1^0.5+(1−p)x2^0.5, where p is the probability that he consumes x1 and 1 - p is the probability that he consumes x2. Wilfred is offered a choice between getting a sure payment of $Z or a lottery in which he receives $2500 with probability p = 0.4 and $3700 with probability 1 - p. Wilfred will choose the sure payment if Z > CE and the lottery if Z < CE, where the value of CE is equal to ___ (please round your final answer to two decimal places if necessary)
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