Suppose that Lizzo's utility function U is given by U = w.53, where w is wealth. Lizzo has wealth of £21,500 but faces a probability of getting ill and being left with only £11,180. She has an 0.8 probability of being well and a 0.2 probability of being ill. a) To within two decimal places (e.g. 2.79), the expected value of Lizzo's wealth is £ 7 b) To within two decimal places (e.g. 1.21), Lizzo's level of utility at the expected value of wealth is c) To within two decimal places (e.g. 0.66), Lizzo's expected utility is

Suppose that Lizzo's utility function U is given by U = w.53, where w is wealth. Lizzo has wealth of £21,500 but faces a probability of getting ill and being left with only £11,180. She has an 0.8 probability of being well and a 0.2 probability of being ill. a) To within two decimal places (e.g. 2.79), the expected value of Lizzo's wealth is £ 7 b) To within two decimal places (e.g. 1.21), Lizzo's level of utility at the expected value of wealth is c) To within two decimal places (e.g. 0.66), Lizzo's expected utility is

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.6P

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