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5. Betty Bat loves the Toronto Blue Jays. She has followed the team since their first snowy game in Exhibition Stadium in 1977. Betty thinks
5. Betty Bat loves the Toronto Blue Jays. She has followed the team since their first snowy game in Exhibition Stadium in 1977. Betty thinks theteam will win the Wiorld Series in 2023 and has come up with a clever plan. She has $900 in savings that she has hidden under her bed. She would spend $500 of those savings to make Blue Jays Championship merchandise (buttons, cups, hats, tshirts, etc). If the Blue Jays win the world Series, Betty estimates that she will earn $1, 700 in revenue, which less her $500 investment nets her $1, 200 in prots, leaving her with wealth of $1, 600. If the Blue Jays lose, Betty won't be able to sell any of her Blue Jay merchandise and will lose her entire investment, leaving her with wealth of $$400. Betty gures that the probability that the Blue Jays will win the world Series is 0.6. Betty's Bernoulli utility function over wealth W7 is given by: MW) 2 l/VU2 (a) If Betty is an expected utility maximizer, will she make the $500 investment in Blue Jays championship merchandise? Why or why not? (b) Calculate the certainty equivalent of Betty's clever plan. (c) Suppose that Betty's best friend, B.J. Birdy, offers her insurance. He says to Betty, \"You pay me F dollars whether or not the Blue Jays win, then in the event that the Blue Jays lose, I will cover your loss and pay you $500\". If Betty's friend expects to break even on the insurance contract, and is risk neutral, what is F? W'ill Betty accept this deal? Why or why not
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