Suppose a Real Estate Agent's Utility Function Is Given by U

question 33

Essay

Suppose a real estate agent's utility function is given by U = I^0.5, where I is income. The agent has uncertain income, such that this year she has a 20% chance of earning $62,500 and an 80% chance of earning $160,000. The income level that would offer the same expected utility is $136,900. What is this agent's risk premium?

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Definitions:

Tense And Anxious

Feeling a state of nervousness or worry, often characterized by physical symptoms like increased heart rate and sweating.

Stays Home

The act of remaining in one's living residence instead of going out to social or public places.

Industrial-Organizational Psychologist

A professional who applies psychological theories and principles to the workplace, aiming to improve productivity, select and retain employees, and enhance organizational effectiveness.

Job Satisfaction

The degree to which an individual feels fulfilled, content, and happy with their job.