The first graph is for Certainty equivalence, and the second one is for Probability equivalence.Horizontal axes represents monetary values and the vertical values represents utility values.
The task for this exercise was to state the amount of money that would make me indifferent between that amount and gamble.
As you can see those two graphs are similar because i am not a much of a gambler. In the first graph i would settle for half of the amount rather than risking to loose whole amount offered.
And in a second graph i would go for a certain amount and only if the probability of me winning more money is high (95%) then it would make me to gamble .
Horizontal axes represents monetary values and the vertical ones utility values. The task was to state the amount of money that would make us indifferent between that amount and a gamble.
You say that your two graphs are similar, but I don't think I'd agree with that. Ideally, of course, we'd have a wider range of data points, but the top graph seems to show a straight line (roughly) whereas the bottom graph has something of a "C"-shape. These two different shapes actually convey different messages about your attitude towards risk. Bearing in mind that you could be (a) risk averse, (b) risk-neutral, or (c) risk-seeking, what do you think the two graphs indicate?
ReplyDeletemy second graph indicates that i am risk seeking. Unless something went wrong when i was doing the utility measurement, i would say that i am risk averse and would prefer to go for a sure thing then to gamble
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