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1. Why do we need the expected utility theorem? Why evaluating random variables by their expected values might not be good enough? (2 points) 2.
1. Why do we need the expected utility theorem? Why evaluating random variables by their expected values might not be good enough? (2 points) 2. Explain the concept of risk aversion in English first, then write down the mathematical equation explaining all its terms. (2 points) 3. Define the coefficient of risk aversion and explain why the curvature of the utility function alone is not a good indicator for the degree of risk aversion. (2 points) 4. Derive the certainty equivalent of a lottery and explain its meaning (2 points) 5. Show that if you have a quadratic utility your expected utility will be of the mean-variance form (2 points)
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