Suppose Aladdin has utility function:
U(W) = 8√W Ɐ W >= 0
= -W^2 Ɐ W < 0
A...
Suppose Aladdin has utility function:
U(W) = 8√W Ɐ W >= 0
= -W^2 Ɐ W < 0
Aladdin has just found the genie's lamp and has wished for a bag of gold since he has nothing at the moment but the clothes on his back. He knows the genie may try to trick him so he has assigned a 25% subjective probability the genie will nd a way to take away his clothes which would cost 4 gold to replace. In addition, he has assigned a 50% subjective probability to getting a medium bag of 16 gold, and a 25% probability of getting a large bag of 100 gold.
Required:
a. What is the expected value of Aladdin's gamble?
b. What is the expected utility of Aladdin's gamble?
Answers: 3
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