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What is the consumer expected income for lottery

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Reference no: EM132422757

Problem: Consider a consumer with an expected utility preference with the utility function u(m) = √ m. Consider two lotteries the consumer may face:

  • Lottery A: Lose $50 with probability (1/4) , win $20 with probability (3/4).
  • Lottery B: Lose $20 with probability (1/10) , lost $10 with probability (6/10) , win $30 with probability (3/10)

Suppose the consumer's original income is 100.

Question 1: What is the consumer's expected income for each lottery?

Question 2: What is the consumer's expected utility for each lottery?

Question 3: Which lottery does the consumer prefer more?

Reference no: EM132422757

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