Hi, Hoping someone can help me with this one. The value of absolute risk aversion at a value of wealth of one unit is 0.25 (iii) Calculate the value of b and the range over which U(.) satisfies the condition of non-satiation. [3] I can get the derivatives and therefore the utility function, but I'm not sure what to do with the condition A(1) = 0.25. Does 0.25 need to be subbed into the formula? Not quite sure how to handle b & w both as unknowns to get past deriving the utility function itself. Any assistance would be great here, hopefully a straightforward thing I am missing.
I think the missing piece of the puzzle here is the fact that w is known; it's equal to one. Then you just need to set your expression for A(w), evaluated at w=1, to be equal to 0.25, ie: \[ \frac{-2b}{1+2b\times 1}=0.25 \]
