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Martin is an expected-utility maximizer with utility function u (c) = 200vc. Martin has $100. Martin knows that if he leaves the money at home,
Martin is an expected-utility maximizer with utility function u (c) = 200vc. Martin has $100. Martin knows that if he leaves the money at home, then it has a probability of being stolen of 30%. Instead of leaving the money at home, can put the money in a security box. The security box costs $19 and has a probability of 20% of being stolen. (a) Calculate the expected utility of Martin if he puts the money in the security box. (10 points) (b) Will Martin put the money in the security box or leave it at home? (10 points) (c) Is Martin risk averse, risk loving, or risk neutral? (10 points)
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