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Do think that pattern of choices between a and b reasonable

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A bettor with utility function U(x) = ln(x), where x is total wealth, hasa choice between the following two alternatives:A Win $10,000 with probability 0:2Win $1,000 with probability 0:8B Win $3,000 with probability 0:9Lose $2,000 with probability 0:1

Problem a. If the bettor currently has $2,500, should he choose A or B?

Problem b. Repeat a, assuming the bettor has $5,000.

Problem c. Repeat a, assuming the bettor has $10,000.

Problem d. Do you think that this pattern of choices between A and B isreasonable? Why or why not?

Reference no: EM132912735

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