Consider Ms Ayse who has an apartment in Istanbul. Ms Ayse thinks the probability of an earthquake in Istanbul next year is 0.3. In that case she would lose her apartment for sure which has value of 1000000TL right now, Suppose her utility function is u(x) = Vx. What is certainty equivalent of having an earthquake in Istanbul when Ms Ayse thinks her apartment (of course that would be terrible for anyone)? How much is she willing to pay for insuring her apartment?
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- If a risk‐averse individual owns a home worth $100,000, and that individual iswilling to pay a maximum of $1,000 for an annual fire insurance policy that covers theentire loss in the event of a fire, then we know that:A. There is a one percent chance that the home will be destroyed by fire inthe next yearB. There is a greater than a one percent chance that the home will bedestroyed by fire in the next yearC. There is less than a one percent chance that the home will be destroyedby fire in the next yearD. None of the above is correctSuppose Grace and Lisa are to go to dinner. Lisa is visiting Grace from outof town, and they are to meet at a local restaurant. When Lisa lived in town,they had two favorite restaurants: Bel Loc Diner and the Corner Stable. Ofcourse, Lisa’s information is out of date, but Grace knows which is betterthese days. Assume that the probability that the Bel Loc Diner is better isp > 1/2 and the probability that the Corner Stable is better is 1 - p. Naturedetermines which restaurant Grace thinks is better. Grace then sends amessage to Lisa, either “Let’s go to the Bel Loc Diner,” “Let’s go to theCorner Stable,” or “I don’t know [which is better].” Lisa receives the message, and then Grace and Lisa simultaneously decide which restaurant to go to. Payoffs are such that Grace and Lisa want to go to the same restaurant, but they prefer it to be the one that Grace thinks is better. More specifically, if, in fact, the Bel Loc Diner is better, then the payoffs from theiractions are as shown in the…When playing roulette at a casino, a gambler is trying to decide whether to bet $10 on the number 30 or to bet $10 that the outcome is any one of the three possibilities 00, 0, or 1. 3 The gambler knows that the expected value of the $10 bet for a single number is - 53¢. For the $10 bet that the outcome is 00, 0, or 1, there is a probability of 38 of making a net profit of $30 and a probability of losing $10. 35 38 a. Find the expected value for the $10 bet that the outcome is 00, 0, or 1. b. Which bet is better: a $10 bet on the number 30 or a $10 bet that the outcome is any one of the numbers 00, 0, or 1? Why? a. The expected value is $. (Round to the nearest cent as needed.) b. Since the expected value of the bet on the number 30 is C than the expected value for the bet that the outcome is 00, 0, or 1, the bet on is better.
- Becky is deciding whether to purchase an insurance for her home againtst burglary. the payoff for her is shown as follow: Net worth of her Net worth of her home: $ 20000 burglary(10%) Net worth of her Net worth of her home: $50000 burglary (90%) The insueance would cover all the loss from burlary and the insurance fee is $8000. Her utility funtion is given as u=w ^0.3 Should Beck purchase the insurance Explain.1. A woman with current wealth X has the opportunity to bet an amount on the o ccurrence of an event that she knows will occur with probability P. If she wager s W, she will received 2W, if the event occur and if it does not. Assume that t he Bernoulli utility function takes the form u(x) = -e-TX with r> 0. How much should she wager? Does her utility function exhibit CARA, DARA, IARA?4. In a paper published in 2020, Robson and co-author Saul Schwartz, a professor in the School of Public Policy at Carleton, found that about 11% of Canadians don't file their tax returns.In our ECON224 class of 35 students: (a) What is the probability that at least 6 students won’t file their tax returns this year? (b) What is the probability that more than 30 students will file their tax returns this year? (c) What is the probability that the number of students in our ECON224 class who won’t file a tax return this year will be greater than 2 but less than 7? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
- According to the Intern al Revenue Service, the mean tax refund for the year 2014 was $2800 Assu me the stan dard devlation I6 $450 an d that the amounts 1etunded follow a normal probability distribution. a. What percont of the refunde aro more th an $3,100? (Round the Intermediate velues to 2 decimal places. Round your answer to 2 decimal places) Percert 0.25 % b. What percent of the refun ds are more th an $3,100 but less th an $3.500? (Round the intermediete values to 2 dec imal places Round your ans wer to 2 decimal places) Peroert c. What percent of the retun ds are more th an $2,250 but less than $3.500? (Round the inter mediate val ues to 2 decimal places Round your answer to 2 decimal places) Peroart1. Now, imagine that Port Chester decides to crack down on motorists who park illegally by increasing the number of officers issuing parking tickets (thus, raising the probability of a ticket). If the cost of a ticket is $100, and the opportunity cost for the average driver of searching for parking is $12, which of the following probabilities would make the average person stop parking illegally? Assume that people will not park illegally if the expected value of doing so is negative. Check all that apply. A. 9% B. 18% C. 17% D. 10% 2. Alternatively, the city could hold the number of officers constant and discourage parking violations by raising the fine for illegal parking. Suppose the average probability of getting caught for parking illegally is currently 10% citywide, and the average opportunity cost of parking is, again, $12. The fine that would make the average person indifferent between searching for parking and parking illegally is ____ , assuming that people will not…Utility Theory You live in an area that has a possibility of incurring a massive earthquake, so you are considering buyingearthquake insurance on your home at an annual cost of $180. The probability of an earthquake damagingyour home during one year is 0.001. If this happens, you estimate that the cost of the damage (fully coveredby earthquake insurance) will be $160,000. Your total assets (including your home) are worth $250,000. A. Apply Bayes’ decision rule to determine which alternative (take the insurance or not) maximizes yourexpected assets after one year.
- Q1. A farmer believes there is a 50-50 chance that the next growing season will be abnormally rainy. His expected utility function has the form Expected utility = 0.5lnYNR + 0.5lnYR Where and represent the farmers income in the state of ‘normal rain’ and ‘rainy’ respectively. Suppose the farmer must choose between two crops that promise the following income prospects Crop YNR YR Wheat $83,000 $10,000 Maize $83,000 $15000 What mix of wheat and maize would provide maximum expected utility to this farmer?Edwina, a commodities broker, has acquired an option tobuy 1,000 oz of gold at $50/oz. If she takes the option and ifCongress relaxes import quotas, she can sell the gold for$80/oz. If she takes the option and Congress does not relaxthe import quotas, however, the company will lose $10/oz. Edwina believes that there is a 50% chance that the governmentwill relax the quota. She also has the option of waiting untilCongress decides whether to relax the import quota. If sheadopts this strategy, however, there is a 70% chance that someother broker will have already taken the option.a If Edwina is risk-neutral, what should she do? b If Edwina’s utility function for a change x in her as-set position is given by u(x) (10,000 x)1/2, what should she do?Suppose that the buyers do not know the quality of any particular bicycle for sale, but the sellers do knowthe quality of the bike they sell. The price at which a bike is traded is determined by demand and supply.Each buyer wants at most one bicycle.(ii) Assuming that each buyer purchases a bike only if its expected quality is higher than the price,and each seller is willing to sell their bike only if the price exceeds their valuation, what is theequilibrium outcome in this market?