Question

CHOICE UNDER UNCERTAINTY

IV. Suppose that individuals are offered a choice between a gamble that pays $20,000

with a probability of 0.3 and $40,000 with a probability of 0.7 OR a certain payment of

$34,000. For individuals exhibiting each of the following preferences towards risk indicate

V. Based on your findings in part IV, draw the graphs associated with each of the utility functions. (No calculations or math needed)

whether they will gamble or choose the certain payment (2 points each):

(Hint: Compare expected utility and utility of the certain payment.)

1. ?=2?                 2. ?=?^2              3. ?=√?

Answer 1

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