Chicken Little is risk-neutral, but is concerned about the sky falling. She believes that there is a 20% chance of this happening. If it does, her egg collection (valued at $320,000) will be crushed. A backyard bunker salesman offers to sell her a disaster shelter, installed, for only $70,000. Given Chicken Little's beliefs, should she buy the shelter?

Chicken Little is risk-neutral, but is concerned about the sky falling. She believes that there is a 20% chance of this happening. If it does, her egg collection (valued at $320,000) will be crushed. A backyard bunker salesman offers to sell her a disaster shelter, installed, for only $70,000. Given Chicken Little's beliefs, should she buy the shelter?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.5P

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