Wilfred's Expected Utility Function Is Pc^1/2₁ + (1 - P)c^1/2₂

question 14

Multiple Choice

Wilfred's expected utility function is pc^1/2₁ + (1 - p) c^1/2₂, where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂.Wilfred is offered a choice between getting a sure payment of $Z or a lottery in which he receives $2,500 with probability .40 or $6,400 with probability .60.Wilfred will choose the sure payment if

• A)Z > 4,624 and the lottery if Z < 4,624.
• B)Z > 3,562 and the lottery if Z < 3,562.
• C)Z > 5,512 and the lottery if Z < 5,512.
• D)Z > 6,400 and the lottery if Z < 6,400.
• E)Z > 4,840 and the lottery if Z < 4,840.

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Definitions:

Confidence

The measure of certainty or belief in the effectiveness, quality, or reliability of something, often used in statistical analysis or personal assurance.

Sample Proportion

The fraction or percentage of observations from a particular category within a sample, used in statistics to make inferences about populations.

Sample Size

The number of observations or replicates included in a statistical sample.

Allowance Factor

A coefficient or multiplier that accounts for expected deviations from standard or nominal conditions, often used in design and engineering to ensure safety or compliance.