Suppose that we interview a group of investors who chose to invest 40% of their portfolio

in small US stocks and 60% in the risk-free asset. We then ask them which asset from

(2) that they prefer. Most answer that they prefer (b). If we believe that the investors

in the group are consistent in their choices, what does this imply about the quadratic

utility function? If we believe that the quadratic utility function is the correct utility

function, what does this imply about the consistency of investors' preferences?