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:

Phoneme

The smallest unit of sound in a language that can distinguish meaning, such as the difference between the sounds of "p" and "b" in "pat" and "bat."

Phonology

The study of the organization and system of sounds in languages.

Morpheme

The smallest grammatical unit in a language that carries meaning; can be a word or a part of a word (such as a prefix).

Gestural Linguistics

The study of communication through non-verbal means, such as gestures and body language, particularly in human interactions.