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QUESTION
Please answer the following question showing your formula in excel.
Please answer the following question showing your formula in excel.
Suppose that a decision maker's utility as a function of her wealth, x, is given by U(x) = ln (x-1000) (ln is the natural logarithm of x).
The decision maker now has $15,000 and two possible decisions. For decision 1, she loses $2,000 for certain. For decision 2, she loses $5,000 with probability 0.25, but gains $10,000 with probability 0.75. Which decision maximizes the expected utility of her net wealth?
