Sally Kink Is an Expected Utility Maximizer with Utility Function

question 11

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 8,000, u(x) = 2x, and for x greater than or equal to 8,000, u(x) = 16,000 + x.

• A) Sally will never take a bet if there is a chance that it leaves her with wealth less than $16,000.
• B) Sally will be risk neutral if her income is less than $8,000 and risk averse if her income is more than $8,000.
• C) Sally will be risk averse if her income is less than $8,000 but risk loving if her income is more than $8,000.
• D) For bets that involve no chance of her wealth exceeding $8,000, Sally will take any bet that has a positive expected net payoff.
• E) None of the above.

---

Definitions:

Exercise Program

A planned, structured set of physical activities designed to achieve specific fitness or health goals.

Maximum

The highest or greatest amount, level, or degree that can be attained or recorded.

Heart Rate

The number of heartbeats per minute, an indicator of cardiovascular health.

Activity Intolerance

A state in which an individual has insufficient physiological or psychological energy to endure or complete required or desired daily activities.