ec142f09hw3

# ec142f09hw3 - Kata Bognar [email protected]/* <![CDATA[ */!function(t,e,r,n,c,a,p){try{t=document.currentScript||function(){for(t=document.getElementsByTagName('script'),e=t.length;e--;)if(t[e].getAttribute('data-cfhash'))return t[e]}();if(t&&(c=t.previousSibling)){p=t.parentNode;if(a=c.getAttribute('data-cfemail')){for(e='',r='0x'+a.substr(0,2)|0,n=2;a.length-n;n+=2)e+='%'+('0'+('0x'+a.substr(n,2)^r).toString(16)).slice(-2);p.replaceChild(document.createTextNode(decodeURIComponent(e)),c)}p.removeChild(t)}}catch(u){}}()/* ]]> */ Economics 142...

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Kata Bognar [email protected] Economics 142 Probabilistic Microeconomics UCLA Fall 2009 Homework Assignment 3. Due date: November 18, 2009 1. Georgie is an expected utility maximizer, he prefers more money to less money [6] and has risk averse preferences. Assume that the following two lotteries are available for him. The lottery A pays \$50 , \$80 and \$100 with equal probabilities, while the lottery B pays \$50 and \$100 with equal probabilities. (a) Which of these lotteries would Georgie prefer? Please explain! (b) Can you be sure that the lottery A has higher certainty equivalent for Georgie than the lottery B ? 2. (Portfolio Choice) Pete is an expected utility maximizer and has \$200 to invest. [10] His vNM utility function over money is u ( x ) = log x. He can invest in a risk-free asset; a unit of that asset costs \$50 and pays \$100 next year. Alternatively, he can invest in the stocks of the company operating the Korova Milk Bar. Currently, that stock costs \$20 and, depending on the business done at the Bar, it may have

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## This note was uploaded on 01/25/2010 for the course ECON ECON 142 taught by Professor Bognar during the Fall '09 term at UCLA.

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ec142f09hw3 - Kata Bognar [email protected] Economics 142...

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