Question: Arnab is a risk-averse decision maker whose utility function is given by U(I) =I^0.5 where I denotes Arnab's monetary payoff. Arnab has Rs. 6,00,625. He

Arnab is a risk-averse decision maker whose utility function is given by U(I) =I^0.5

where I denotes Arnab's monetary payoff. Arnab has Rs. 6,00,625. He can either keep

this, or he can invest all this money in a machine tools factory. If he invests, then he

may end up with Rs. 10,00,000 with probability 0.6, or Rs. 250,000 with probability 0.4.

Should Arnab invest in this factory?

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