You have utility U=VC and $100. Stacy holds a gun to your head and says you must accept a gamble - you lose $100 if it's heads (leaving you with 0) and gain $100 (leaving you with $200) if its tails. a) What would you be willing to pay Stacy to avoid this gamble? $50 solved, if you need this to answer below b) Suppose Stacy will not take your bribe. She will offer you, instead, the option to bet $50 on two-coin flips. Each flip would then give you $100 for winning and $0 if you lose. How much does your utility increase with this option relative to the single flip gamble? Round to the nearest 0.1.

You have utility U=VC and $100. Stacy holds a gun to your head and says you must accept a gamble - you lose $100 if it's heads (leaving you with 0) and gain $100 (leaving you with $200) if its tails. a) What would you be willing to pay Stacy to avoid this gamble? $50 solved, if you need this to answer below b) Suppose Stacy will not take your bribe. She will offer you, instead, the option to bet $50 on two-coin flips. Each flip would then give you $100 for winning and $0 if you lose. How much does your utility increase with this option relative to the single flip gamble? Round to the nearest 0.1.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.2P

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