Expected wealth and utility

Reference no: EM1315895

After her final exam this semester, Sylvia must drive from her school in Philadelphia to her home in upstate New York, and has two possible routes: driving through Pennsylvania (PA) or New Jersey (NJ). Sylvia drives over the speed limit (which is the same in both PA and NJ). In choosing her route, Sylvia's only concern is the probability that she will receive a speeding ticket, and the size of the resulting .ne. Prior to the trip, Sylvia has a wealth of Y=$300. Sylvia's utility of wealth function is U = √y : If she drives through PA, she has a 50% chance of getting a $200 .ne. If she drives through NJ, she has a 25% chance of getting a $300 .ne.

a)What are Sylvia's expected .ne, expected wealth, and expected utility if she travels through NJ?

b) What are Sylvia's expected .ne, expected wealth, and expected utility if she travels through PA?

c) Compare Sylvia's expected wealth and her expected utilities on the two routes. Comment on the comparison.

Reference no: EM1315895

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