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Suppose you are endowed with with a utility function over wealth given by: u(w) = 7w...

Suppose you are endowed with with a utility function over wealth given by: u(w) = 7w + 100. Further, suppose you are offered a gamble that pays $10 with probability 30% and $100 with probability 70%. (A) What is the expected value of this gamble? (B) Would you rather have the gamble, or a guaranteed $70? (C) Now suppose your utility function is u(w) = 100w − 18. How does your answer in (B) change? (D) Suppose the utility function is now CARA utility, given by: u(w) = 1−eaw, where a is a number and a > 0. Does this utility function exhibit risk aversion?

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