00:01
So here we're given a utility function.
00:02
Utility is equal to 30 plus 5w to the power of 0 .35.
00:09
I'm pretty sure that's to the power, plus 40w to the power of 0 .15.
00:17
And now we are thinking about an investment opportunity, right? an investment opportunity.
00:25
We don't, however, know where the person is starting off from in terms of and that is going to make this a little more abstract than you might like.
00:35
Or the other way is that we could simply assume that we start from zero, right? so, a, the expected utility of this investment is the sum of the probability awaited actual utilities, right? so we need to compute what this expected utility would be in each of these situations.
00:55
So in the first case, you get $10, right? 10 bucks.
01:00
So you get your utility is a 25 % chance of 30 plus 5 times 10 to the 0 .35 plus 40 times 10 to the 0 .15 plus a 75 % chance of ending up with a thousand.
01:18
So we end up with 30 plus 5 times 1 ,000 to the 0 .35 plus 40 times 1 ,000 to the 0 .35.
01:27
And that goes in into our calculator.
01:31
So when i put that into my calculator, i get expected utility of 173 .55...