(Figure: Utility and Income) Suppose That Sara Has an Income

question 12

Essay

(Figure: Utility and Income) Suppose that Sara has an income of $80,000 but if her business burns down, her income drops to $20,000.
a. What is Sara's expected income?
b. What is the probability that Sara's business will burn down?
c. What is Sara's expected utility?
d. What is Sara's utility evaluated at her expected income? (You will not be able to give a specific value, so provide a range of values for your answer.)
e. What is Sara's certainty equivalent?

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Definitions:

Primitive Features

Traits or characteristics considered to be more basic or simple in evolutionary or developmental terms, often associated with early ancestors or stages of development.

Top-down Processing

A cognitive approach to perception that utilizes pre-existing knowledge, expectations, and experiences to interpret sensory information.

Gestalt Principles

A psychological theory that proposes the human brain organizes visual elements into groups or unified wholes when certain principles are applied, such as similarity, proximity, continuity, and closure.

Visual Agnosia

A disorder marked by the inability to recognize or identify objects through sight, caused by brain damage.