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For this homework, upload a le containing your answers to the following problem: Suppose you are faced with the following gamble G . There is
For this homework, upload a le containing your answers to the following problem: Suppose you are faced with the following gamble "G" . There is a 1/3 chance of winning $36, and a 2/3 chance of winning $81. 1. What is the expected value of the gamble? 2. If you have square root utility function (that is, U (X) = 1/ X ), what is the expected utility of the gamble? 3. If you have square root utility function, what is the certainty equivalent of the gamble? 4. Use your answers in questions 1 and 3 above to argue that a decision maker with square root utility function would exhibit risk aversion in her choices related to this gamble. 5. Illustrate your answer from part (4) by a graph. 0 label the axis and put the relevant values 0 indicate EV(G) by point A 0 indicate EU(G) by point B
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