Consider the following decision problem with monetary outcomes: State: Si S2 Probability: a $100 $0 Act: $0 $100 (a) Ann is risk neutral. What is the maximum price that she is willing to pay for perfect information? (b) Bob is risk averse with von Neumann-Morgenstern utility function U($x) = vx and zero initial wealth. What is the maximum price that he is willing to pay for perfect information?
Consider the following decision problem with monetary outcomes: State: Si S2 Probability: a $100 $0 Act: $0 $100 (a) Ann is risk neutral. What is the maximum price that she is willing to pay for perfect information? (b) Bob is risk averse with von Neumann-Morgenstern utility function U($x) = vx and zero initial wealth. What is the maximum price that he is willing to pay for perfect information?
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: The Basic Tools Of Finance
Section: Chapter Questions
Problem 9PA
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