Question: Let X be a binomial random variable with n = 2 and p = 1 2, while Y is also binomial but with

Let ˜ X be a binomial random variable with n = 2 and p = 1 2, while ˜ Y is also binomial but with n = 3 and p = 1 3.

(a) Draw their cumulative distribution functions. Is ˜ Y riskier than ˜ X in the sense of Rothschild and Stiglitz?

X

.)

(b) Compute σ2 for ˜ X and ˜ Y. (You should of course obtain that σ2

˜ Y exceeds

σ2

˜

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