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1. Consider the 3 outcome gamble X1 : $10 with probability P1 : 0.2, X2 : $40 with probability P2 = 0.4 and X3 =
1. Consider the 3 outcome gamble X1 : $10 with probability P1 : 0.2, X2 : $40 with probability P2 = 0.4 and X3 = $60 with probability P3 = 0.4. Assume the utility of income is u(X) : J? (a) What is the expected value of this gamble? (b) What is the expected utility of the gamble? ) ( ( d) Which is preferred the gamble or the expected value? c What is the utility of the expected value of the gamble? (e) What level of income for sure would make this individual indifferent to choosing the gamble (this is called the certainty equivalent of the gamble)
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