12 (The St. Petersburg Paradox) Let L represent the following lottery. I toss a coin until it comes up heads. If the first heads is obtained on the nth toss of the coin, I receive a payoff of $2n.

a If I were a risk-neutral decision maker, what would be the certainty equivalent of L? Is this reasonable?

b If a decision maker’s utility function for increasing wealth by x dollars is given by u(x)  log2(x), what would be the certainty equivalent of L?