Question: 1 Expected utility Emma is an expected utility maximizer. Her utility function over an amount of money r is u(x) = In(r + 1). (a)

1 Expected utility Emma is an expected utility maximizer. Her utility function over an amount of money r is u(x) = In(r + 1). (a) Graph Emma's utility function. (b) Suppose Emma has a lottery ticket that pays $100 with probability , and $0 with probability =. What amount of money $r would make Emma indifferent between the lottery and the sure amount $2? (c) Suppose that Emma's utility function is instead u(r) = -5 + 3r. What amount of money $r would make Emma indifferent between the lottery in (b) and the sure amount $r? (d) Suppose that Emma's utility function is instead w(r) = -5 + 3c'. What amount of money $r would make Emma indifferent between the lottery in (b) and the sure amount $r? (e) Compare the answers to questions (b), (c) and (d) with the expected value of the lottery. A person is said to be risk (averse, neutral, seeking) if the amount they are willing to receive for certain in exchange for a lottery is (smaller, equal, larger) than the expected value of the lottery. Which function represents risk averse, neutral and seeking preferences

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