1 Esm works at an IT company. Esm's company has a contract for developing an app for a security system that needs to be hack-proof. Making the app hack-proof requires specific knowledge that Esm does not have. However, Esm can still make the app hack-proof but there is a risk of failure. With Esm's knowledge, the app development is a success with 2/3 probability and it is a failure with probability 1/3. Esm is the leading developer for this contract. Her earnings are divided into two parts a salary and the reward/loss from the app development. Esm gets a salary of $1000 irrespective of the outcome of the app development. If the app development is a success, she gets a bonus of $600 (and so she gets $1600 in total). If it is a failure, she has to pay $600 to (partially) cover accrued costs of development (so she gets $400 in total). Esm is risk averse and her Bernoulli utility function is u(x) = x. (a) Esm's project development is a gamble. The outcomes are the net (total) earnings after app development. Express the app development as a gamble. Clearly state what the probabilities and the (sure) outcomes are in this gamble. Find the certainty equivalent of this gamble.