Suppose that you have utility as a function of income i, Ask an Expert

Economics

Suppose that you have utility as a function of income (I) given by the equation: $U = \sqrt{501}$

Consider a lottery that provides a payoff of $0 with probability 0.75 and $200 with probability 0.25.

a) What is the expected value of this lottery?

b) What is the expected utility of this lottery?

c) What is your utility if you receive a sure payoff of $50? Compare this to the expected utility of the lottery and determine if you are risk adverse.

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9473513

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