Suppose your utility function for income takes the form U(I) = square root of I (i.e. square root of Income), where I represents thousands of euros. You are considering a self-employment opportunity that may pay €25,000 or €64,000 per year with probability of 0.75 for an outcome of €25,000 and a probability of 0.25 for an outcome of €64,000. Your current salary is €49,000 per year. Which of the following statements is correct? A. You should move jobs because the expected value of the self employment position is higher than your current salary. B. You should move jobs because the expected utility of the self employment position is higher than your current salary. C. You should not move jobs because the expected value of the self employment position is lower than your current salary. D. You should not move jobs because the expected utility of the self employment position is lower than your current salary.
Suppose your utility function for income takes the form U(I) = square root of I (i.e. square root of Income), where I represents thousands of euros. You are considering a self-employment opportunity that may pay €25,000 or €64,000 per year with probability of 0.75 for an outcome of €25,000 and a probability of 0.25 for an outcome of €64,000. Your current salary is €49,000 per year. Which of the following statements is correct?
A. You should move jobs because the expected value of the self employment position is higher than your current salary.
B. You should move jobs because the expected utility of the self employment position is higher than your current salary.
C. You should not move jobs because the expected value of the self employment position is lower than your current salary.
D. You should not move jobs because the expected utility of the self employment position is lower than your current salary.
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