Suppose my utility function for asset position x is given by u(x) = ln x.
a Am I risk averse, risk neutral, or risk seeking?
b I now have $20,000 and am considering the followingtwo lotteries:
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L1: |
With probability 1, I lose $1,000. |
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L2: |
With probability .9, I gain $0. |
|
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With probability .1, I lose $10,000. |
Determine which lottery I prefer and the risk premium of L2.