Discuss the certainty-equivalent approach

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Reference no: EM131524442

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?

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