Question: A decision maker with a logarithmic w-curve owns a deal that pays $100 and $1,000 with equal probabilities. For simplicity, assume the initial wealth is zero.
a. What is his certain equivalent of this deal? Due to unforeseen circumstances, the decision maker will now receive only 70% of the deal (i.e., the decision maker will now receive either $70 or $700)
b. What is his certain equivalent of this modified deal? How does it compare to the certain equivalent of the original deal?