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2. Consider two lotteries, A and B. With lottery A, there is a 0.90 chance that you receive a payoff of S0 and a 0.10
2. Consider two lotteries, A and B. With lottery A, there is a 0.90 chance that you receive a payoff of S0 and a 0.10 chance that you receive a payoff of $400. With lottery B, there is a 0.50 chance that you receive a payoff of S30 and a 0.50 chance that you receive a payoff of $50, a) Verify that these two lotteries have the same expected value but that lottery A has a bigger variance than lottery B. b) Suppose that your utility function is U = V1 + 500. Compute the expected utility of cach lottery. Which lottery has the higher expected utility? Why? c) Suppose that your utility function is U = 1 + 500. Compute the expected utility of each have this utility function, are you risk averse, risk neutral, or risk loving? d) Suppose that your utility function is U = (1 + 500). Compute the expected utility of each lottery. If you have this utility function, are you risk averse, risk neutral, or risk loving
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