Question: Imagine Robert has the concave utility function U (W) = (W) 1/2 . Imagine Robert is about to graduate from college with an economics degree.

Imagine Robert has the concave utility function U (W) = (W)^1/2. Imagine Robert is about to graduate from college with an economics degree. When he graduates, he will either get a job paying $2500 per month (being a private economics tutor) or $10000 per month (coding game theory games in C++). She believes the probability of getting each job is 50% and she will only get one job.

Michael has the linear utility function U (W) = W/100 and he has the same job prospects as Robert.

What is Robert's expected utility?
What is the variance of Robert's expected utility?
What risk premium would Robert pay to avoid bearing this risk?
What is Michael's expected utility?
What is the variance of Michael's expected utility?
What risk premium would Michael pay to avoid bearing this risk?
Who is more risk averse - Robert or Michael?

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