Sadija has a concave utility function of U(W) = In(W). She has inherited a ring from a relative, but she is unsure about its value. She believes that it is worth £6,000 with a probability of 1/3 and £3,000 with a probability of 2/3. a. Ahmed would like to buy the ring from her. Which price would he need to offer for Sadija' utility to remain unchanged after the sale? b. In fact, Ahmed offers £4,000 for the ring. What can you infer about Ahmed?

Sadija has a concave utility function of U(W) = In(W). She has inherited a ring from a relative, but she is unsure about its value. She believes that it is worth £6,000 with a probability of 1/3 and £3,000 with a probability of 2/3. a. Ahmed would like to buy the ring from her. Which price would he need to offer for Sadija' utility to remain unchanged after the sale? b. In fact, Ahmed offers £4,000 for the ring. What can you infer about Ahmed?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.5P

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