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Assume a lottery of payout $80 with a probability of 10% and $2 with a probability of 90%. Assume an agent with utility function u(p)=p⁵

User Mrutyunjay
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Final answer:

The question requires calculating the expected utility in a lottery scenario where the outcomes have different probabilities and a given utility function u(p)=pµ is applied.

Step-by-step explanation:

The question pertains to the calculation of expected value in a lottery situation with a given probability distribution and a specific utility function. To answer the question, one would need to calculate the expected utility, not just the expected monetary value, because of the given utility function u(p)=pµ. The expected utility is found by multiplying the utility of each outcome by their respective probabilities and summing these products. In this case, it involves calculating the utility for a payout of $80 with a 10% chance and a payout of $2 with a 90% chance, and then finding the expected utility based on those calculations.

User Jacobdo
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