A decision maker has a utility function for monetarygains x given by u(x) (x 10,000)1/2. a Show that the person is indifferent between the sta-tus quo and L: With probability 13, he or she gains $80,000 L: With probability 23, he or she loses $10,000b If there is a 10% chance that a painting valued at$10,000 will be stolen during the next year, what is themost (per year) that the decision maker would be willingto pay for insurance covering the loss of the painting?
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
A decision maker has a utility
gains x given by u(x) (x
10,000)1/2.
a Show that the person is indifferent between the sta-
tus quo and
L: With probability
1
3
, he or she gains $80,000
L: With probability
2
3
, he or she loses $10,000
b If there is a 10% chance that a painting valued at
$10,000 will be stolen during the next year, what is the
most (per year) that the decision maker would be willing
to pay for insurance covering the loss of the painting?
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