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As you know, utility functions incorporate a decision maker's attitude towards risk. Would a risk neutral decision maker be willing to take the following deal:

As you know, utility functions incorporate a decision maker's attitude towards risk.

  1. Would a risk neutral decision maker be willing to take the following deal: 40% chance of winning $500, 20% chance of winning $200 and a 40% chance of losing $1,000?
  2. Using the following utilities given in the table below for Sarah, determine whether Sarah would be willing to take the deal described in part 1?
x u(x)
-$1,000 0
$0 30
$200 50
$500 100

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