For Someone Whose Utility Is Equal to Twice the Square

question 32

Multiple Choice

For someone whose utility is equal to twice the square root of income, where X denotes income,and the coefficient of relative risk aversion is ½. If this individual's income is currently $25,what insurance premium would (s) he pay to avoid a 20% chance of having income fall to $9?

• A) $1.79
• B) $2.20
• C) $3.20
• D) $3.84
• E) $4.02

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Definitions:

Social Coalitions

Alliances or partnerships formed between individuals or groups to achieve common goals or interests.

Functional Fixedness

Functional fixedness is a cognitive bias that limits a person to using an object only in the way it is traditionally used.

Less Knowledge

A state of having limited information, awareness, or understanding about a subject or topic.

Metalinguistic

Pertaining to the awareness and understanding of linguistic components, including the ability to think about and analyze language.