Question: Suppose that your utility function is u(w) = 10%. Consider the following two lotteries: A 0.90 chance that you receive a payo' of $0 and

Suppose that your utility function is u(w) = 10%. Consider the following two lotteries: A 0.90 chance that you receive a payo' of $0 and a 0.10 chance that you receive a payoff of $400. B 0.50 chance that you receive a payoff of $30 and a 0.50 chance that you receive a payoff of $50. (a) Compute the expected utility of each lottery, and use this to determine which gamble you would prefer. Explain intuitively using the concept of risk aversion. (b) Compute the risk premium associated with each lottery. In words, how do these values reect your answer to part (a)

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