If you are exposed to a 50/50 chance of gaining or losing $1,000 and insurance that removes the risk costs $500, at what level of wealth will you be indifferent relative to taking the gamble or paying the insurance? That is, what is your certainty equivalent wealth? Assume your utility function is U (W) = - W-1.
DATE
Question answered on Jul 22, 2018
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Solution~000637625.zip (18.37 KB)