Exam 14: Managerial Decision-Making Under Uncertainty

If two events are perfectly negatively correlated, then

Natasha is going to buy a risky asset that has an expected value of $62, which yields an expected utility of 146. Her risk premium is $19. What is her certainty equivalent?

Expected utility is

After Hurricane Katrina, there was considerable public outrage that many of the properties were not insured against flooding although they were insured against wind damage. What might explain these different approaches to insurance?

If Stock A and Stock B both increase in value at the same time, they are

A risk-preferring person is willing to pay

John's utility from an additional dollar increases more when he has $1,000 than when he has $10,000. From this, we can conclude that John

Variance is a measure of ________ and the higher the variance, ________.

Sarah buys little stuffed animals for $5 each. They come in different varieties. If the producer stops making (retires)a certain variety, a stuffed animal of that variety will be worth $100; otherwise it is worth $0. There is 50% chance that any variety will be retired. For the purchase of an individual stuffed animal, what is the value to Sarah of knowing ahead of time whether the variety will be retired?

-The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. Bob is risk averse because

A jar has 20 red jelly beans and 40 black jelly beans. If you pick a red jelly bean and put it back, what are the odds of picking a black jelly bean next?

On any given day we know a salesman can earn $0 with a 30% probability, $100 with a 20% probability or $300 with 40% probability. His expected earnings equal

Sports announcers often refer to a baseball batter in a hitting slump as "being due." If they are correct, then it must be the case that

Fair insurance

Someone who is risk-averse has

Sarah buys little stuffed animals for $5 each. They come in different varieties. If the producer stops making (retires)a certain variety, a stuffed animal of that variety will be worth $100; otherwise it is worth $0. There is 50% chance that any variety will be retired. When Sarah buys her next stuffed animal, the expected value is

Which of the following sets of outcomes is mutually exclusive?

If two events are positively correlated but NOT perfectly correlated, then

Politicians often highlight the plight of a single individual as a reason to support a particular project or agenda. In this case, politicians are using

A risk-neutral person will invest in a project by examining if