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Jimmy’s and Zelda’s utility of wealth schedules,

wealth schedules
Use the following table, which shows Jimmy’s and Zelda’s utility of wealth schedules, to work Problems 15 to 17.

Wealth
Jimmy’s utility
Zenda’s utility
0
0
0
100
200
512
200
300
640
300
350
672
400
375
678
500
387
681
600
393
683
700
396
684

15. What are Jimmy’s and Zelda’s expected utilities from a bet that gives them a 50 percent chance of n having a wealth of $600 and a 50 percent chance of having nothing?
16. a. Calculate Jimmy’s and Zelda’s marginal utility of wealth schedules.
b. Who is more risk averse, Jimmy or Zelda? How do you know?
17. Suppose that Jimmy and Zelda each have $400 and are offered a business investment opportunity that involves committing the entire $400 to the project. The project could return $600 (a profit of $200)with a probability of 0.85 or $200 (a loss of $200) with a probability of 0.15. Who goes for the project and who hangs on to the initial $400?

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