Consider the following two gambles: Option A: you win $50 with probability 0.75 and lose $100 with probability 0.25. Option B: You win $100 with probability 0.25 and lose $50 with probability 0.75. Which option is preferred according to expected utility if i) You use an exponential utility function with R=5 ii) You use an exponential utility function with R=10 iii) You use an exponential utility function with R=100 iv) You use an exponential utility function with R=1000 v) You use an exponential utility function with R=10,000
Consider the following two gambles: Option A: you win $50 with probability 0.75 and lose $100 with probability 0.25. Option B: You win $100 with probability 0.25 and lose $50 with probability 0.75. Which option is preferred according to expected utility if i) You use an exponential utility function with R=5 ii) You use an exponential utility function with R=10 iii) You use an exponential utility function with R=100 iv) You use an exponential utility function with R=1000 v) You use an exponential utility function with R=10,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![3) Consider the following two gambles:
Option A: you win $50 with probability 0.75 and lose $100 with probability 0.25.
Option B: You win $100 with probability 0.25 and lose $50 with probability 0.75.
Which option is preferred according to expected utility if
i) You use an exponential utility function with R=5
ii) You use an exponential utility function with R=10
iii) You use an exponential utility function with R=100
iv) You use an exponential utility function with R=1000
v) You use an exponential utility function with R=10,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6b250788-63cf-46e9-ad6a-86080c6ba8f6%2Fba01496d-09e3-4cba-ba48-2f1b9b8071bf%2Fdaxai2g_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3) Consider the following two gambles:
Option A: you win $50 with probability 0.75 and lose $100 with probability 0.25.
Option B: You win $100 with probability 0.25 and lose $50 with probability 0.75.
Which option is preferred according to expected utility if
i) You use an exponential utility function with R=5
ii) You use an exponential utility function with R=10
iii) You use an exponential utility function with R=100
iv) You use an exponential utility function with R=1000
v) You use an exponential utility function with R=10,000
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