Expected utility functions have to be concave if they are to represent risk averse tastes.
Answer the following statement true (T) or false (F)
False
Rationale: The utility functions used to construct the expected utility function have to be concave if tastes are risk averse.
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Even when measured accurately, GDP may be a misleading measure of economic welfare because it cannot account for
A) the value of government spending and how efficiently we produce goods and services. B) how efficiently we produce goods and services and the value of non-market production. C) the value of non-market production and the consequences of an unequal distribution of income. D) the consequences of an unequal distribution of income and the value of government spending.
Smith just bought a house for $250,000. Earthquake insurance, which would pay $250,000 in the event of a major earthquake, is available for $25,000
Smith estimates that the probability of a major earthquake in the coming year is 10 percent, and that in the event of such a quake, the property would be worth nothing. The utility (U) that Smith gets from income (I) is given as follows: U(I) = I0.5. Should Smith buy the insurance? A) Yes. B) No. C) Smith is indifferent. D) We need more information on Smith's attitude toward risk.