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2. (15 points) Avril and Louvin have vNM utility functions v(y) = and w(y) = y2, respectively. Each of them has an income of g
2. (15 points) Avril and Louvin have vNM utility functions v(y) = and w(y) = y2, respectively. Each of them has an income of g = 100 initially. (a) Each of them is now offered a fair bet (7r;z) = (3/8; 125, 75), i.e., with probability 7r = 3/8 the bettor wins and gets $125, and with probability 1 7r = 5/8 the bettor loses and has to pay $75. Represent this bet as a prOSpect. Who will take the bet and who will not? (b) For the person who declines to take the bet, how much is he or she willing to pay to avoid the bet? How much is the other person willing to pay to get the bet
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