Thursday, 28 October 2010

certainty equivalence vs. probability equivalence

   The following graphs show the assessment of my utility function using certainty- and probability equivalence exercises.

    As we can see, both of the graphs look roughly the same and show that as the monetary value increases, utility value does too. The similarity of the graphs indicate that a same strategy is used for both exercises, whether it's deciding on monetary value or the utility value- assessing me as risk aversive peron.

1 comment:

  1. At the moment, both graphs are incomplete because you haven't plotted the utilities for the lowest and highest amounts; these should of course be a utility of 0 for £0 and a utility of 1 for £100,000. Until you've plotted these it's a bit hard to tell the true shape of the curves.

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