Suppose Investor A has a power utility function with γ = 1, whilst Investor B has a power utility function with γ = 0.5 (i) Which investor is more risk-averse(assuming that w > 0)? (ii) Suppose that Investor B has an initial wealth of 100 and is offered the opportunity to buy Investment X for 100, which offers an equal chance of a payout of 110 or 92. Will she choose to buy Investment X?

Suppose Investor A has a power utility function with γ = 1, whilst Investor B has a power utility function with γ = 0.5 (i) Which investor is more risk-averse(assuming that w > 0)? (ii) Suppose that Investor B has an initial wealth of 100 and is offered the opportunity to buy Investment X for 100, which offers an equal chance of a payout of 110 or 92. Will she choose to buy Investment X?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.10P

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