Sally Kink Is an Expected Utility Maximizer with Utility Function

question 8

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.

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Definitions:

Ionization Potential

The amount of voltage or potential that must be applied to cause ionization of a gas.

Atmospheric Pressure

The pressure exerted by the weight of the atmosphere at any given point, usually measured in millibars (mb) or atmospheres (atm).

Voltage

An electrical measurement of potential difference, electrical pressure, or electromotive force (EMF).

Cuprous Cyanide

A chemical compound used to electroplate copper to iron.