4. You have been accepted by two universities, Alpha and Beta. Suppose the only thing you care about is the influence each school will have on your career prospects. Beta is a safe option because you know you will do well enough there to graduate and get a job in which you will earn $680,000 over your lifetime. Alpha, on the other hand, is more prestigious but also more demanding. If you go to Alpha and graduate, you will earn $1 million over your lifetime, but if you fail to graduate you will end up in a job in which you earn only $260,000 over your lifetime. Suppose the probability that you would fail to graduate from Alpha is 40 percent.

1. (8) Which school will you choose if you are risk neutral?
2. (8) Which school will you choose if your utility function is U = I ?
3. (8) If your utility function is U = I, what lifetime earnings from a job ensured by graduation from Beta would make you indifferent between the two schools? Does your answer make sense? Explain.