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December 19, 2014

Homework Help: stu

Posted by nguyen hong minh on Sunday, October 21, 2012 at 5:03am.

An individual with utility function U(X) = X2 bought Lottery A and Lottery B.
Lottery A gives a payoff of $2 or $4 equally likely.
Lottery B gives a payoff of $4 or $8 equally likely.
a) Calculate the expected utility of Lottery A and Lottery B together.
b) What is the certainty equivalent of Lottery A and Lottery B together?
c) Find the maximum price which this individual is willing to pay for both lotteries.

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