1. Johnathan's utility for money is given by the exponential function: U(X)=4-4^(-x/1000).

a.Based on his utility function, what is his risk-odds for the $+/-1 deal, r($1)?

b.Is Johnathan a deltaperson? Explain.

c.Is he risk-neutral? Explain.

d.What is his risk-odds for the $+/-100 deal, r($100)?

e.What is his risk-aversion coefficient?

2. Suppose U(X)=15+X.

Hint: See the Risk Graph notes posted in Moodle

a. Graph this utility function

b. Suppose you have a binary lottery with a 40% chance of $0 and a 60% chance of $100. Draw the probability tree of this lottery.

c. Show the lottery in Part B on your graph from Part A. You need to show: U(0), U(100), EV, U(EV), EU, U(CE) and the CE. Be sure to label everything clearly. **If the TA cannot read your graph, you cannot get points**

d. What can you say about the CE and EV for this lottery? Why?

5. Consider the following situation: $?5 $51] 430 $20 Assume UfX] = 4-4'lm". a. 1What is the preferred alternative, A or B? h. Assume this decision maker is a m Her uncle offers to give her an additional amount $10 {added to each payoff of deal A}. 1lliiliat is her preferred alternative, A or E