Re: Econ HW - Expected Value
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Question: What is the expected value of a random toss of a die? (Fair and six-sided.)
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I would say it's 1/6
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Suppose your current wealth, M, is 100 and your utility function is U = M^2. You have a lottery ticket that pays $10 with a probability of 0.25 and $0 with a probability of 0.75. What is the minimum amount for which you would be willing to sell this ticket?
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I'm not sure how the utility function and current wealth plays into this question, but I'd assume the minimum price you'd sell the ticket for is P=0.25(10)+.75*(0)=$2.50.
It's possible since the prize is 10 dollars your utility from the prize is 10^2 or 100. If this is the case, then the minimum price would be Pmin=0.25(100)+.75(0)=25.
disclaimer: these may/may not be correct.
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