Question: Risk Loving Behavior: Consider a risk-loving decision with initial wealth w who faces a lottery that pays $x with probability 12 and -$x with probability

Risk Loving Behavior: Consider a risk-loving decision with initial wealth w who faces a lottery that pays $x with probability 12 and -$x with probability 12.

1a. Draw a diagram labeling (i) w and the outcomes of the lotteries, (ii) u(w) and the expected utility of the lottery, and (iii) the certainty equivalent of the lottery. 1b. How does u(w) compare to the EU of the lottery? 1c. How does the expected value of the lottery compare to the certainty equivalent?

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