New York University BUSF-SHU BUSF-SHU 304 O 2. (30 points; substantially modified from number 14 on Problem…
An individual has initial wealth w and holds a lottery ticket that will be worth zA with probability p and -zB with probability 1 – p. Here, A, B, and z are positive, with pA ≤ (1-p)B. Let X be the maximum amount the individual would pay someone to take this ticket off his hands. Prove that if the individual is risk-averse, then X is an increasing function of z.
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