To determine the utility function of an investor by direct measurement, two wealth values A...
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To determine the utility function of an investor by direct measurement, two wealth values A and B are selected as reference points and a lottery has outcome A with probability p and outcom probability 1-p. For various values of p, a questionnaire asks about how accept in place of the lottery. The utility function U then satisfies U(C)-pA-p)B for each probability A young woman has her utility function determined by direct measure- ment. She uses the normalization U(A) A, U(B) B. To check her result, she repeats the whole procedure over the range A' 0 and b. Find a and To determine the utility function of an investor by direct measurement, two wealth values A and B are selected as reference points and a lottery has outcome A with probability p and outcom probability 1-p. For various values of p, a questionnaire asks about how accept in place of the lottery. The utility function U then satisfies U(C)-pA-p)B for each probability A young woman has her utility function determined by direct measure- ment. She uses the normalization U(A) A, U(B) B. To check her result, she repeats the whole procedure over the range A' 0 and b. Find a and
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