Discuss the certainty-equivalent approach

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Question: Assess your utility function in three different ways.

a. Use the certainty-equivalent approach to assess your utility function for wealth over a range of $100 to $20,000.

b. Use the probability-equivalent approach to assess U($1,500), U($5,600), U($9,050), and U($13,700). Are these assessments consistent with the assessments made in part a?

c. Use the trade-off method to assess your utility function for values ranging from $100 to $20,000.
Plot the assessments from parts a, b, and c on the same graph and compare them. Why do you think they differ? Can you identify any biases in your assessment process?

Reference no: EM131524442


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