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Unformatted text preview: Outline Numerical Stuff von Neumann and Morgenstern Von NeumannMorgenstern: Lecture XI Charles B. Moss September 14, 2010 Charles B. Moss Von NeumannMorgenstern Outline Numerical Stuff von Neumann and Morgenstern Numerical Stuff von Neumann and Morgenstern Axioms Ordering and Combining Charles B. Moss Von NeumannMorgenstern 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.
 Fall '08
 Weldon

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