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Question: julia and john prefer more money to less and...

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. Julia and John prefer more money to less and have transitive prefernces. Each of them faces the following decision problem. S260 $80 M T SX 30% 50% 20% S320 $80 $0 $320 S0 (a) Suppose that Julia is risk neutral. If she chooses A and then U, what can we deduce about the possible values of X and p? (b) Continue to assume that Julia is risk neutral. Suppose that X-250, p 0.9. Julia is given a choice between facing the above decision tree and playing the lottery $320 S260 $80 S60 What will she choose? If she chooses the decision tree 0.6 0.2 0. 0.1 explain what choices she makes, otherwise explain why she prefers the lottery (c) Suppose that X-100 and p 0.9 and John starts by choosing A. Then he says that he is indifferent between U and T. Is he risk neutral, risk averse or risk loving?

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