Question: a and b Problem 6 (10 points) Oscar's utility function is if x 0 Note that x is allowed to take on negative values. A

a and b

Problem 6 (10 points) Oscar's utility function is if x 0 Note that x is allowed to take on negative values. A positive value is a monetary gain, a negative value is a (a) Is Oscar risk-averse? Explain ymur answer. Hint: sketch the graph of the function u. (b) Consider the lottery L (0, 10; 1/2, 1/2), which yields $0 with probability 1/2 and $ 10 with probability 1/2. What is the risk premium that Oscar associates with this lottery? How much is he willing to pay for this lottery?

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