EBK MICROECONOMICS
21st Edition
ISBN: 8220103960151
Author: McConnell
Publisher: YUZU
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Question
Chapter 8, Problem 3RQ
To determine
Heuristics and biases.
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Jin's Utility Function
Wealth
Utility
(Dollars)
60,000
4,000
61,000
4,110
62,000
4,209
63,000
4,288
Refer to Table 27-1. If Jin's current wealth is $61,000, then
O his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Jin is not risk
averse.
O his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Jin is not risk
averse.
O his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Jin is risk
averse.
his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Jin is risk averse.
If a risk-neutral individual owns a home worth $200,000 and there is a three
percent chance the home will be destroyed by fire in the next year, then we know
15.
that:
a) He is willing to pay much more than $6,000 for full cover.
b) He is willing to pay much less than $6,000 for full cover.
c) He is willing to pay at most $6,000 for full cover.
d) None of the above are correct.
e) All of the above are correct.
Mike is the proud owner of Prospect X, which he values at $10 (so, for Mike, CE(X) = $10).
If EV(X) = $12, what is the most you can say about Mike's risk preferences and/or his utility of wealth function?
(Select all that apply)
O Mike's utility of wealth function must be concave.
O Mike must be risk averse.
O For Mike, it must be the case that U(EV(X) > $10.
O If Mike had to choose between Prospect X and receiving $9 with certainty, he would choose the $9.
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