Find the value for p

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Question: a. Find the value for p that makes you indifferent between

Lottery 1                       Win $1,000 with probability p

Win $0 with probability 1 - p

And

Lottery 2                       Win $400 for sure

b. Now find the q that makes you indifferent between

Lottery 3                       Win $400 with probability 0.50

Win $0 with probability 0.50

And

Lottery 4                      Win $1,000 with probability q

Win $0 with probability 1 - q

c. According to your assessment in part a, U($400) = p. In part b, U($400) = 2q. Explain why this is the case.

d. To be consistent, your assessments should be such that p = 2q. Were your assessments consistent? Would you change them? Which assessment do you feel most confident about? Why?

Reference no: EM131524492

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