Concerned about the explanations/answers to b and c:

1.2) As in the previous exercise, consider an initial wealth of 10 and the lottery X. Assume now that the utility is: for w s 10, w+5 for w>10. tw (a) Draw the utility function. Is it globally concave? (b) Compute the certainty equivalent and the risk premium attached to X (c) Can you apply the Arrow-Pratt approximation? Why? (d) Consider now the lottery I detined in exercise 1.1. Compute the risk premium attached to y. Is it smaller than for X? Why? (e) Answer (b) and (d) above if the individual has an initial wealth of 20 How do the risk premia for & and ? compare? 1.2) As in the previous exercise, consider an initial wealth of 10 and the lottery X. Assume now that the utility is: for w s 10, w+5 for w>10. tw (a) Draw the utility function. Is it globally concave? (b) Compute the certainty equivalent and the risk premium attached to X (c) Can you apply the Arrow-Pratt approximation? Why? (d) Consider now the lottery I detined in exercise 1.1. Compute the risk premium attached to y. Is it smaller than for X? Why? (e) Answer (b) and (d) above if the individual has an initial wealth of 20 How do the risk premia for & and ? compare