Suppose a Decision Maker Has a Utility Function $$U = \sqrt { I }$$

question 63

Multiple Choice

Suppose a decision maker has a utility function $$U = \sqrt { I }$$ and is faced with a lottery where there is a 30% chance of earning $30 and a 70% chance of earning $80. What is the expected utility of this lottery?

• A)7.6
• B)7.9
• C)8.2
• D)8.5

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Definitions:

Common Value Auctions

Auctions in which the item for sale has a single, unknown value to all bidders, leading to challenges in valuing the item correctly.

True Value

The accurate or genuine worth of an item or entity, reflecting its utility, market conditions, and inherent qualities.

Bidders

Individuals or entities that offer a price for goods, services, or assets in an auction or tender process, competing to make the purchase.

Bid-rigging

An illicit agreement between parties to fix the outcome of a bidding process to benefit at least one of the participants.