Let b(p,s,t) be the bet that pays out s with probability p and t with probability 1−p. We make the three following statements: S1: The CME for b is the value m such that u(m)=E[u(b(p,s,t))]. S2: A risk averse attitude corresponds to the case CME smaller than E[b(p,s,t))]. S3: A risk seeking attitude corresponds to a convex utility function. Are these statements true or false?

Let b(p,s,t) be the bet that pays out s with probability p and t with probability 1−p. We make the three following statements: S1: The CME for b is the value m such that u(m)=E[u(b(p,s,t))]. S2: A risk averse attitude corresponds to the case CME smaller than E[b(p,s,t))]. S3: A risk seeking attitude corresponds to a convex utility function. Are these statements true or false?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.1P

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