Let ? > 0. A decision maker has a utility function for m
Question and Solution
Let ? > 0. A decision maker has a utility function for money of the form U (x) = x? if x > 0, x if x ? 0. Suppose that
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Let ? > 0. A decision maker has a utility function for money of the form U (x) = x? if x > 0, x if x ? 0. Suppose that this decision maker is trying to decide whether or not to buy a lottery ticket for $1. The lottery ticket pays $500 with probability 0.001, and it pays $0 with probability 0.999. What would the values of ? have to be in order for this decision maker to prefer buying the ticket to not buying it?
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