Exam 14: Managerial Decision-Making Under Uncertainty

-The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. The midpoint of the chord that runs from zero and intersects the utility function where wealth is 100, represents Bob's

Your friend Dimitre tells you that he thinks that his favorite basketball team has a 70% chance of winning the next game. This is an example of a(n)

Natasha is going to buy a risky asset that has an expected value of $62, which yields an expected utility of 146. Equivalently, she could get utility of 146 from a certainty equivalent of $43. What is Natasha's risk premium?

Insurance companies offer only unfair insurance because

If fair insurance is offered to a risk-averse person, she will

With regards to an investment project, which of the following is TRUE?

Risk-averse individuals make risky investments

-The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. Bob will buy theft insurance to cover the full $100

Which of the following helps to reduce risk?

Although he is very poor, Al plays the million-dollar lottery everyday because he is certain that one day he will win. Al makes this calculation based upon

A fair game is a game in which the chances are 50-50 that you win or lose.

If Stock A sometimes increases and sometimes decreases in value when Stock B decreases in value at the same time, they are

Best guesses of an event occurring in the future are based on

For a given expected value, the smaller the standard deviation of the expected value, the larger the risk.

Insurance companies do NOT offer fair insurance because

-The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. Bob's expected utility is