Suppose the function u(x) = 2x represents your taste over gambles using an expected utility function....

Suppose the function u(x) = 2x represents your taste over gambles using an expected utility function. Consider a gamble that will result in a lifetime consumption of x0 with probability p, and x1 with probability 1 – p, where x1 > x0.

(a) Are you risk averse? Explain.

(b) Write down the expected utility function.

(d) What is the expected value of the gamble?

(e) What is the risk premium of the gamble?

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Expert Solution

Rahul Sunny answered 10 months ago

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