Econ 100b Winter 2010 Quiz 1 Version 1 You have 10 minutes to take this quiz. For each of the questions please circle the letter corresponding to the correct answer. 1. Today you have $100, but there is a 50% chance you will lose everything in the stock market. Your friend oFers to fully insure your loss if you pay a ±at $64 fee. If your utility over wealth is u ( w )= √ w , which of the following is true? (a) EU (accept) = 4, EU (reject) = 5 (b) EU (accept) = 6, EU (reject) = 5 (c) EU (accept) = 8, EU (reject) = 50 (d) EU (accept) = 10, EU (reject) = 50 2. You just bought a watch that you value at $10. Because it’s a cheap watch, there is a 40% chance it is defective, in which case you would only value it at $4 (it still looks
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