Will the individual take the bet if cost is given

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Question: An individual has the utility function U = , where W denotes wealth, and is considering a bet in which there is a 30 per cent chance of winning £49 clear, and a 70 per cent chance of winning nothing.

(a) Will the individual take the bet if it costs £5?

(b) Will they take it if it costs £2?

(c) Will they take it at a cost of £5 if the utility function takes the form U = W?

(d) Will they take it at a cost of £20 if the utility function takes the form U = W?

(e) Will they take it at a cost of £20 if the utility function takes the form U = W2?

Reference no: EM131504964

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