Nick is risk averse and faces a financial loss of $40 with probability 0.1. If nothing happens, his wealth is $260. If there is an actuarially fair insurance available to him, he buys the insurance so that his wealth would be the same in either state. True False

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.4P
icon
Related questions
Question
Nick is risk averse and faces a financial loss of $40 with probability 0.1. If nothing
happens, his wealth is $260. If there is an actuarially fair insurance available to him,
he buys the insurance so that his wealth would be the same in either state.
True
False
Suppose that Jim has a von Neumann-Morgenstern utility function:
U(c) = c².
%3D
Based on his utility function, we can tell that Jim is
There is not enough information to determine his risk preference.
risk averse.
risk neutral.
risk loving.
Transcribed Image Text:Nick is risk averse and faces a financial loss of $40 with probability 0.1. If nothing happens, his wealth is $260. If there is an actuarially fair insurance available to him, he buys the insurance so that his wealth would be the same in either state. True False Suppose that Jim has a von Neumann-Morgenstern utility function: U(c) = c². %3D Based on his utility function, we can tell that Jim is There is not enough information to determine his risk preference. risk averse. risk neutral. risk loving.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Microeconomic Theory
Microeconomic Theory
Economics
ISBN:
9781337517942
Author:
NICHOLSON
Publisher:
Cengage
Brief Principles of Macroeconomics (MindTap Cours…
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning