John Doe is a rationale person whose satisfaction or preference for various amounts of money can be expressed as a function U(x) = (x/100)2, where x is in $. How much satisfaction does $40 bring to John?
If we limit the range of U(x) between 0 and 1.0, then we can use this function to represent John's utility (i.e. U(x) becomes his utility function). How does his utility function look like?
What does U(x) show about John's incremental satisfaction with respect to x?
The shape of John''s utility function shows that he is willing to accept _______ risk than a risk-neutral person.
John is considering a lottery with a payoff of $80, 40% of the time, and $10, 60% of the time. If John plays this lottery repeatedly, how much will be his long-term average satisfaction?
For John, what certain amount would give him satisfaction equal to this lottery? Express your answer to nearest whole $.