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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Definitions:

Folate

A B-vitamin essential for red blood cell formation and for healthy cell growth and function.

Vitamin E

A group of eight fat-soluble compounds that include tocopherols and tocotrienols, which act as antioxidants protecting cells from damage.

Rugae

Folds or wrinkles found in the stomach lining that allow for expansion as the stomach fills.

Stomach

A muscular organ in the gastrointestinal tract of humans and many animals, responsible for digesting food by secreting acid and enzymes.