Exam 17: Uncertainty

-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 will buy theft insurance to cover the full $100

The Friedman-Savage utility function can explain why

What is one reason a gambler might bet $1,000 that a sixteenth seed team will win the NCAA basketball tournament?

Risk premium is the ________ amount that a ________ person would pay to avoid ________.

John derives more utility from having $1,000 than from having $100.From this,we can conclude that John

Searching the Internet for information to help select a product that is more reliable is most likely to be done by a

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

Distinguish between risk that can be reduced through diversification and risk that cannot be reduced through diversification.

A risk-averse person's expected utility function is

-Bob's utility function is shown in the above figure.He currently has $100 worth of property,but there is a 50% chance that all of it will be stolen.An insurance company offers to reimburse Bob for his loss if the money is stolen.What is the most that Bob would pay for such a policy? Explain.

What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100,and 80% of the time returns $50? Explain.

If a person is risk neutral,then she

Describe how the risk premium for a person with a convex utility function is determined.

The ability of diversification to reduce risk

For the utility function U = W^a,what values of "a" correspond to being risk averse,risk neutral,and risk loving?

-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's expected utility is

Usury laws result in banks making less credit available to lower-income households because

Which of the following statements is CORRECT?

Jill's utility from an additional dollar increases more when she has $400 than when she has $200.From this,we can conclude that Jill

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?