You have just sold the company you started and want to 'invest' your gains and help a new start-up get off the ground. You are faced with the following 2 options. Each depends on how well the economy does. You will be investing $50,000 into one of the options.

Game Stats is a company that will provide real-time statistics to fans at sporting events. It links to phones through bluetooth and will provide stats, replays and helmet cam views from payers/drivers. This company has the potential to go big, however is dependent on a thriving economy to maximize attendance at sporting events.

Possible outcomes in 3 years time: Company may fail (probability of 0.3) and payout is $0. Good Economy (probability of 0.5) payout is $60,000. A great economy (probability of 0.2) payout is $150,000.

SecurIT is an application that you can load onto any device that will ensure that no other applications can track your personal information without your direct consent. This company does not have the same potential as Game Stats, however will not be impacted as much by economic conditions.

Possible outcomes in 3 years time: Company may fail (probability of 0.3) and payout is $0. Good Economy (probability of 0.5) payout is $75,000. A great economy (probability of 0.2) payout is $85,000.

Q: Your choice of investment will depend on your utility function. Which investment should you choose in each situation?

A) Your utility function is the expected value (y=x).

B) Your utility function is √x. Show/explain your reasoning

C) Your utility function is (x/1000)² . Show/explain your reasoning