Jamal has autility function U=W1/2,where W is his wealth in millions of dollars and U is the utitlity he obtains from that wealth.Inthe final stage of a game show,the host offers offers Jamal a choice(A)$4 million dollar for sure,or (B) a gamble that pays $1 million with probability 0.6 and $9million with probability 0.4. a.Graph Jamal's utitility function.Is he risk averse?Explain. b.Does A or B offers Jamal a higher expected price?Explain your reasoning with appropriate calculations. c.Does A or B offer Jamal a higher expected utility? d.Should Jamal pick A or B? Why?

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter7: Uncertainty
Section: Chapter Questions
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Jamal has autility function U=W1/2,where W is his wealth in millions of dollars and U is the utitlity he obtains from that wealth.Inthe final stage of a game show,the host offers offers Jamal a choice(A)$4 million dollar for sure,or (B) a gamble that pays $1 million with probability 0.6 and $9million with probability 0.4.

a.Graph Jamal's utitility function.Is he risk averse?Explain.

b.Does A or B offers Jamal a higher expected price?Explain your reasoning with appropriate calculations.

c.Does A or B offer Jamal a higher expected utility?

d.Should Jamal pick A or B? Why?

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