Question: Problem 2. (20 points total) Alice and Ben are both expected utility maximizers. Alice's vNM utility is u (x) = r while Ben's vNM utility

Problem 2. (20 points total) Alice and Ben are both expected utility maximizers. Alice's vNM utility is u (x) = r" while Ben's vNM utility is u2 (x) = " where both o and B are strictly between 0 and 2. Consider the following lotteries: . Lottery P: (25%, $2; 75%, $0) . Lottery Q: (q, $1; 1 - q, $0) For any lottery Q where q is between 0 and 1, if Alice prefers P to Q then Ben also prefers P to Q. (1) What do we know about the relationship between o and ? (10 pts) (2) Suppose Ben is risk-averse. Do we know if Alice is risk-averse or risk-loving? (5 pts) (3) Suppose Alice is risk-averse. Do we know if Ben is risk-averse or risk-loving? (5 pts)

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