Mary Is a Fervent Iowa State University Cyclone Basketball Fan

question 60

Essay

Mary is a fervent Iowa State University Cyclone Basketball fan.She derives utility as a function of the ISU team winning the Big XII championship and from income according to the function and w is her level of wealth.Mary believes the probability of a Cyclone championship is ¹/₄.Mary has been offered the following "insurance policy." The insurance policy costs $16.If the Cyclones win the championship,she pays only the policy cost of $16.If the Cyclones lose,she will receive $21.50 (so that after taking into account the policy cost of $16,her net return is $5.50).Will Mary's expected utility increase if she purchases the policy?

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