- 3 The Figure Below Shows Alex S Utility Function The Curved Blue Line He Is Currently Broke But Has Applied For A S 1 (114.43 KiB) Viewed 32 times
3. The figure below shows Alex's utility function (the curved blue line). He is currently broke, but has applied for a s
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3. The figure below shows Alex's utility function (the curved blue line). He is currently broke, but has applied for a s
3. The figure below shows Alex's utility function (the curved blue line). He is currently broke, but has applied for a scholarship of $2000, which he has a 40% chance of obtaining. U U(w) 200 D 100 В. 2 LA wealth 0 0 340 800 2000 (a) What is Alex's expected utility and expected wealth? What does x in the chart repre- sent? (b) Is Alex risk averse, risk neutral or risk loving? Explain. (c) A classmate of Alex, Neel, really wants that scholarship and is afraid of competing with Alex for it. He is willing to offer him some money in exchange for the withdrawal of his application. What sum of money is Alex willing to accept? What does this imply for his risk premium?
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