Johnrsquos utility of income function is ui 10radici10, Ask an Expert

Economics

John’s utility of income function is U(I) = 10√I(10 sqroot I). Is John risk averse, risk loving, or risk neutral? First answer based on the shape of the utility function, then consider the following scenario. Assume that John owns a lottery ticket that pays him $1000 with probability 0.1 and nothing with probability 0.9. a) What is the expected income that John will receive from this lottery? (100) b) What is the expected utility that John will receive from this lottery? (31.62) c) Assuming that John has a choice between keeping the lottery ticket and selling it for a price equal to $100 (the expected income), what will John do? What does that imply about his attitude towards risk? Is your answer the same with the answer you provided initially, based on the shape of the utility function? (it should be!)

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91867224

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