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3. Suppose U(X)=15+X. Hint: See the Risk Graph notes posted in Moodle a. Graph this utility...

3. Suppose U(X)=15+X.

Hint: See the Risk Graph notes posted in Moodle

a. Graph this utility function

b. Suppose you have a binary lottery with a 40% chance of $0 and a 60% chance of $100. Draw the probability tree of this lottery.

c. Show the lottery in Part B on your graph from Part A. You need to show: U(0), U(100), EV, U(EV), EU, U(CE) and the CE. Be sure to label everything clearly. **If the TA cannot read your graph, you cannot get points**

d. What can you say about the CE and EV for this lottery? Why?

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