Question: Jonas maximizes expected utility: U(1, 2,c1,c2) = 1c1+ 2c2 Jonas's friend Steven has offered to bet him $10.00 on the outcome of the toss of

Jonas maximizes expected utility:

U(1, 2,c1,c2) = 1c1+ 2c2

Jonas's friend Steven has offered to bet him $10.00 on the outcome of the toss of a coin. If

the coin comes up head, Jonas must pay Steven $10.00 and if the coin comes up tails, Steven must pay Jonas $10.00

If Jonas doesn't accept the bet, he will have $100.00 with certainty.

Let Event 1 be "coin comes up heads".

a. What is Jonas's utility if he accepts the bet and if he decides not to bet? Does Jonas take the bet?

b. Answer the question ina, if the bet is $100.00

c. Answer the question if Jonas must pay Steven $100.00 if he coin comes up heads, but if the

coin comes up tails Stefan must pay Jonas $500.00.

d. Kevin would also like to gamble with Jonas. He is very intelligent and realizes the nature of

Jonas' preferences. He offers him a bet that Jonas will take. Kevin says: "If you lose you will give me $10.00 If you win, I will give you ........?

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