First-order Condition for Expected Utility Maximization
- For every state s
- expected marginal utility of wealth = k*price
- If every state is equally probable
- mu(ws ) = k*Ps
- for CRRA utility
- mu(ws ) = ws-l
- Thus
- Ps = K*(ws-l )
- ln(Ps) = ln(K) - l*ln(ws)