Slides11-2010 - Outline Numerical Stuff von Neumann and...

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Unformatted text preview: Outline Numerical Stuff von Neumann and Morgenstern Von Neumann-Morgenstern: Lecture XI Charles B. Moss September 14, 2010 Charles B. Moss Von Neumann-Morgenstern Outline Numerical Stuff von Neumann and Morgenstern Numerical Stuff von Neumann and Morgenstern Axioms Ordering and Combining Charles B. Moss Von Neumann-Morgenstern Outline Numerical Stuff von Neumann and Morgenstern Numerical Stuff I In the preceding lecture, we found the expected utility of a gamble that paid $150,000 with probability of 0.6 and $50,000 with probability 0.4. Assuming a r = 0 . 5, the power utility function yields a certainty equivalent of $103,569. I Lets work on a slightly different problem, again assume that we have a risky gamble that pays $150,000 with some probability p and $50,000 with probability (1 p ). I I assert that we can find a p that makes the decision maker indifferent between the risky gamble and a certain payoff of $108,000. Naturally, we assume that p is higher than 0.6 (why?)....
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This note was uploaded on 07/15/2011 for the course AEB 6182 taught by Professor Weldon during the Fall '08 term at University of Florida.

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Slides11-2010 - Outline Numerical Stuff von Neumann and...

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