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Question
Scenario 27-2Suppose Dave has a utility function
where Wis his wealth in millions of dollars and Uis the utility he obtains.RefetoScenario27-2.Suppose Dave is faced with a choice between two options. With option A Dave receives a guaranteed $2 million. With option B Dave faces a lottery that pays $10 million with probability Pand pays $0 with probability (1-P). Given Dave's utility function, how high does Pneed to be before he will prefer option B over option A?
Answer
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