Scenario 27-2
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Suppose Dave Has a Utility Function $$U = 4 W ^ { 1 / 2 }$$

question 76

Essay

Scenario 27-2
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Suppose Dave has a utility function
$$U = 4 W ^ { 1 / 2 }$$ where W is his wealth in millions of dollars and U is the utility he obtains.
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-Refer to Scenario 27-2. Suppose Dave is faced with a choice between two options. With option A Dave receives a guaranteed $2 million. With option B Dave faces a lottery that pays $0 with probability 0.8 and pays $10 million with probability 0.2. Given Dave's utility function, will he prefer option A or option B? Provide evidence to support your answer.

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