Question
Alice and Ben are both expected utility maximizers. Alice's vNM utility is u1 (x) = x^ while Ben's vNM utility is u2 (x) = x^
Alice and Ben are both expected utility maximizers. Alice's vNM utility is u1 (x) = x^ while Ben's vNM utility is u2 (x) = x^ where both and are strictly between 0 and 2. Consider the following lotteries:
Lottery P : (25%, $2; 75%, $0)
Lottery Q: (q, $1; 1q, $0)
For any lottery Q where q is between 0 and 1, if Alice prefers P to Q then Ben also prefers P to Q.
1. What is the relationship between and ? Do we know which is larger?
2. Suppose Alice is risk-loving. Do we know if Ben is risk-averse or risk-loving?
3. Suppose Ben is risk-loving. Do we know if Alice is risk-averse or risk-loving?
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