Benny Is a Expected Utility Maximizer with a Well- Behaved

question 59

Essay

Benny is a expected utility maximizer with a well- behaved, continuously differentiable utility function (i.e., no kinks or inflection points).
i)Benny is presented with the following choices:
A. $1,000 for sure
B. 50% chance of $800 and 50% chance of $1,500
C. $500 for sure
D. 50% chance of $400 and 50% chance of $900
Benny is indifferent between A and B and is also indifferent between C and D. (Note: this does not imply that he is indifferent between A and C or B and D.)
Is Benny risk neutral, risk averse, risk loving, or can't you tell? Explain.
ii)He is now faced with the following choice:
E. $750 for sure
F. 25% chance of $400 and 25% chance of $900 and 25% chance of $800 and 25% chance of $1,500. Will Benny choose E or F, or is he indifferent between them, or is not possible to tell?

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Definitions:

FMVSS

Stands for Federal Motor Vehicle Safety Standards, a set of U.S. government regulations designed to ensure the safety of vehicle manufacturers and road users.

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The attribute of visual perception by which a source appears to emit or reflect light, influencing how we perceive colors and contrast.

Odometer

A device used for measuring the distance traveled by a vehicle.

Distance Travelled

denotes the length of the path taken by an object or individual from one point to another, usually measured in units such as kilometers or miles.