You are participating in the "modified St. Petersburg Gambling.” The rules are as follows: • You flip a coin until you s

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You Are Participating In The Modified St Petersburg Gambling The Rules Are As Follows You Flip A Coin Until You S 1 (51.38 KiB) Viewed 43 times

You are participating in the "modified St. Petersburg Gambling.” The rules are as follows: • You flip a coin until you see the T side. That means, if the result of a flip is H, you can try the next turn. If the result is T, the game is over. • You will be given 2N [$] as the Reward of the gamble where N is the number of the coin flips. • If you see 9 consecutive H's, you get 210 [$] and the game is over. • Examples I HHT - Reward: 8 $ т - Reward: 2$ IHHHHHHHHT – Reward: 512 $ HHHHHHHHH - Reward: 1024 $ d. What is the Expected Reward of this gamble? e. Suppose that you are a risk averse individual whose utility function is expressed as: U = Reward. What is the Certainty Equivalence (CE) value of this gamble for you? f. Dong-Uk (Course TA) is also participating in the gamble. His utility function is: U = log2 (Reward). Calculate the CE value of this gamble for Dong-Uk. g. Calculate the risk premiums of this gamble for you and Dong-Uk. Who is more risk averse? Why?