Question
Vanessa has a certain income of $100, while Dante has a risky income of either $200 or $0 with equal probability. Both have utility of
Vanessa has a certain income of $100, while Dante has a risky income of either $200 or $0 with equal probability. Both have utility of square root of income.
Suppose Dante offers to pay Vanessa $100 if things go well for him (when his income is $200) if she will pay him $50 when his income is $0. (Suppose she can verify his income, to make sure he really has nothing when he says so!)
Would this be a deal that is mutually beneficial? To answer, you must determine whether the deal will increase the expected utility of both people.
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