Wilfred's Expected Utility Function Is Pc^1/2₁ + (1 - P)c^1/2₂

question 14

Multiple Choice

Wilfred's expected utility function is pc^1/2₁ + (1 - p) c^1/2₂, where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂.Wilfred is offered a choice between getting a sure payment of $Z or a lottery in which he receives $2,500 with probability .40 or $6,400 with probability .60.Wilfred will choose the sure payment if

• A)Z > 4,624 and the lottery if Z < 4,624.
• B)Z > 3,562 and the lottery if Z < 3,562.
• C)Z > 5,512 and the lottery if Z < 5,512.
• D)Z > 6,400 and the lottery if Z < 6,400.
• E)Z > 4,840 and the lottery if Z < 4,840.

---

Definitions:

Business Judgment Rule

A legal principle that protects corporate directors and officers from liability for decisions made in good faith and believed to benefit the company.

Action Against Directors

Legal proceedings brought against the directors of a company for negligence, breach of duty, or other wrongdoing.

Large Purchase

A significant expenditure on a single item or service, often involving detailed planning and considerable financial outlay.

Perfect Body

An idealized concept of what a human body should look like, often culturally influenced and unrealistic.