[continues question 5]

Then, given Jordan utility function,

Question

[continues question 5]

Then, given Jordan utility function,

BlackTom AI · Accepted Answer

The task presents a multiple-choice question, but the data provided for this item is incomplete. Specifically, there are no answer options listed for evaluation, even though there is an answer field containing a single candidate: "Jordan should place the money in a bank." In such a situation, a thorough analysis of each option cannot be performed because options to compare and contrast are missing.

What we can do is reason about the situation given in the prompt in a generic way to illuminate what would typically influence the choice of where to place money when considering a Jordanian utility function. In expected utility theory, several factors often matter:
- The form of the utility function: whether it is linear in wealth, concave, or exhibits constant relative risk aversion affects whether riskless assets like a bank deposit (if insured and safe) maximize expected utility versus riskier investments.
- The risk environment: if banks are insured (for example, deposit insurance) and provide a certain return, they can be preferred by risk-averse individuals; if insurance is absent or the interest rate is very low, other investments might yield higher utility.
- The opportunity set and constraints: transaction costs, liquidity needs, and the availability of alternative assets (stocks, bonds, real estate, informal investments) influence the optimal allocation for a given utility function.
- Time preference and horizon: a Jordanian utility function could incorporate intertemporal trade-offs; short-term needs might favor bank deposits for liquidity, while longer horizons might push toward investments with higher expected returns despite risk.

If we consider the solitary option provided—"place the money in a bank"—without competing alternatives, we can outline why this choice is often suggested in standard models under common assumptions:
- Bank deposits are typically risk-free (subject to insurance and solvency risk). For a risk-averse utility function, a risk-free option often yields higher utility than a volatile investment with the same expected return.
- The certainty of a bank return (interest) reduces variance in outcomes, which tends to increase expected utility for concave utility functions where diminishing marginal utility of wealth makes risk more costly.
- If liquidity is valued, banks provide swift access to funds, which can be reflected in the utility calculation if the utility function incorporates liquidity preference.

However, without the actual set of answer choices, any critique of the single listed option remains speculative. Potential counterpoints to the bank option in typical utility-maximization contexts include:
- If the utility function is risk-seeking over some wealth ranges, or if there exist investment opportunities with higher risk-adjusted returns, the bank option may be inferior.
- If deposit insurance is incomplete or interest rates are below alternative risk-free rates elsewhere, a bank deposit may not maximize utility.
- If the problem emphasizes intertemporal optimization with a need for capital gains, a bank deposit may be suboptimal compared to assets with higher expected growth, even after accounting for risk.

In a well-formed question, we would examine each listed option against the Jordan utility function, discussing how each choice affects expected utility given the function’s curvature and the economic environment. Since the options are missing here, we cannot assign correctness or falsity to any alternative and cannot definitively justify why one option would outperform the others. If you can provide the complete set of answer options, I can deliver a detailed, option-by-option analysis aligned with the Jordan utility framework.

SIPAIA6400_001-002_2025_3 - Microeconomic Analysis for International and Public Affairs Problem Set 8, Individual Portion

[continues question 5] Then, given Jordan utility function,

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