6. Expected Utility. Consider a Princeton student who feels that a "normal" year on campus is like gaining SA, compared to taking the year off, which gives utility u(woff). But she fears Princeton will renege on its promise of a normal year, and move everything online; she feels that this is like losing $L (compared to a normal on-campus year). If she expects this to happen with probability p, (a) Write out the expected utility from enrolling. (b) Write out the expected utility from taking the year off. (c) Show: if the student chooses to take the year off, and is risk-loving, it must be that L>A/p.

6. Expected Utility. Consider a Princeton student who feels that a "normal" year on campus is like gaining SA, compared to taking the year off, which gives utility u(woff). But she fears Princeton will renege on its promise of a normal year, and move everything online; she feels that this is like losing $L (compared to a normal on-campus year). If she expects this to happen with probability p, (a) Write out the expected utility from enrolling. (b) Write out the expected utility from taking the year off. (c) Show: if the student chooses to take the year off, and is risk-loving, it must be that L>A/p.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter31: Capital Markets

Section: Chapter Questions

Problem 2E

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