1.2 How does the concept of the utility of wealth capture the idea that the pain of loss exceeds the pleasure of gain? Faced with uncertainty, a person chooses the action that maximises expected utility. To select the job that gives her the maximum expected utility, Tania must:

◆ Calculate the expected utility from the risky telemarketing job

◆ Calculate the expected utility from the safe painting job

◆ Compare the two expected utilities Figure 19.3 illustrates the calculations. You’ve just seen that the risky telemarketing job gives Tania an expected utility of 70 units. The safe painting job also gives Tania a utility of 70 units. That is, the total utility of

£2,000 with no risk is 70 units. So with either job, Tania has an expected utility of 70 units. She is indifferent between these two jobs.