Figure 2. 2 gives an example of a utility curve for a risky investment. For this risky investment, expected utility is on the Y-axis, and expected returns are on the X-axis. What is the main concept conveyed by this graph?

Figure 2.2

Transcribed Image Text:

Gain Loss 100 -100 150 -100 210 -100 0.60 0.55 0.50 290 -100 0.45 380 -100 0.40 520 -100 0.35 600 -100 0.30 Expected Utility 3 2.5 2 1.5 1 0.5 0 Probability Utility Utility Expected Expected of Gain of Gain of Loss Return Utility 5.0 -6.0 7.8 -6.0 10.1 -6.0 12.8 -6.0 15.7 -6.0 19.3 -6.0 23.4 -6.0 0 20 40 60 80 Expected Return 100 20.0 37.5 55.0 75.5 92.0 117.0 110.0 120 0.60 1.59 2.05 2.46 2.68 2.86 2.82 140