Clicker questions April 19 _ 21

Clicker questions April 19 _ 21 - Choice & Markets in...

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Choice & Markets in the Presence of Risk April 19 Econ 100A Prof. Reynolds
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Mia is offered a choice between $15 in cash or a lottery ticket with 1/10 probability of winning $100 and 9/10 probability of winning $0. Mia takes the lottery ticket. From an economist’s perspective she is most likely: A. Risk adverse B. Risk neutral C. Risk loving D. Bad at math
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Mario’s utility function is x 1/3 . Normally he earns $27,000 a year. However, in any given year he has ¼ chance of breaking up with his girlfriend, which is very distressing so he will only earn $8,000 that year. How much would Mario be willing to pay for break-up insurance? A. $22,250.00 C. $1,453.13 B. $20,796.88 D. $7,416.67 E. None of the above
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always buy actuarially fair insurance? A. Some of the risk is eliminated, but the expected value is the same. B. Even though the expected value is lower, all the risk is eliminated. C. All the risk is eliminated and the expected value is the same. D. The customer does not always buy actuarially fair insurance because he does not trust the insurance companies to stay in business due to the moral hazard problem.
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This note was uploaded on 09/11/2011 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.

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Clicker questions April 19 _ 21 - Choice & Markets in...

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