Expected utility, again Suppose that you are facing three gam bles. A gives you a 1/3 probability of winning $9. B gives you a 1/4 probabil ity of winning $16. C gives you a 1/5 probability of winning $25.

(a) What is the expected utility of each of these gambles if your utility func tion is u(x)5 !x, and which one should you choose?

(b) What is the expected utility of each of these gambles if your utility func tion is u (x) 5 x2, and which one should you choose?

Exercise 6.26 Expected value and expected utility Assume again that your utility function is u(x)5 !x. Compute (i) the expected value and (ii) the expected utility of the following gambles:

(a) G: You have a 1/4 chance of winning $25 and a 3/4 chance of winning $1.

(b) G*: You have a 2/3 chance of winning $7 and a 1/3 chance of winning $4.