Eva is considering what major to study in college. Her utility function is based on the income she earns, and is defined by U(I) = I0.7. If she majors in metalworking, she will earn $120,000 per year with probability 1. If she majors in finance, she will earn $250,000 per year with probability 0.5 (assuming the market goes well) and $45,000 with probability 0.5 (if the market tanks and she has to go move in with her parents and work at as an SAT tutor) .

1. Is she risk averse, risk neutral, or risk loving? Explain.

2. Write out the equation for her expected utility for each major

3. Which major will she pick? Show your work.

4. Suppose someone offers her insurance for the possibility that the market tanks. This insurance will provide her an amount of income in addition to the wages that makes her indifferent between metalworking and finance. What is this amount, and what is the cost of the insurance? (note: many possible answers)