Scenario 27-1
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Lisa Has a Utility Function $$U = W ^ { 1 / 2 }$$

question 107

Essay

Scenario 27-1
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Lisa has a utility function
$$U = W ^ { 1 / 2 }$$ where W is Lisa's wealth in millions of dollars and U is the utility she obtains.
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-Refer to Scenario 27-1. Suppose Lisa is faced with a choice between two options. With option A Lisa receives a guaranteed $9 million. With option B Lisa faces a lottery that pays $4 million with probability 0.4 and pays $16 million with probability 0.6. Given Lisa's utility function, will she prefer option A or option B? Provide evidence to support your answer.

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