(See Problem 11

question 20

Multiple Choice

(See Problem 11.) Pete's expected utility function is , where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂. Pete is offered a choice between getting a sure payment of $Z or a lottery in which he receives $1,600 with probability .80 or $14,400 with probability .20. Pete will choose the sure payment if

• A) Z > 3,136 and the lottery if Z < 3,136.
• B) Z > 8,768 and the lottery if Z < 8,768.
• C) Z > 14,400 and the lottery if Z < 14,400.
• D) Z > 2,368 and the lottery if Z < 2,368.
• E) Z > 4,160 and the lottery if Z < 4,160.