47. Develop the relationship between an individuals risk preference and their willingness to engage in a given bet, where the indierence equation is EuW0

47. Develop the relationship between an individual’s risk preference and their willingness to engage in a given bet, where the indi¤erence equation is E½uðW0  L þ YÞ ¼ uðW0Þ;

with L ¼ cost of gamble, and Y ¼ potential payo¤. In other words, how is the resulting relationship between L and E½Y determined by u00ðxÞ? (Hint: Use Jensen’s inequality.)