The chief executive officer of a publishing company says she is indifferent between the certainty of receiving $7,500 and a gamble where there is a 0.5 chance of receiving $5,000 and a 0.5 chance of receiving $10,000. Also, she says she is indifferent between the certainty of receiving $10,000 and a gamble where there is a 0.5 chance of receiving $7,500 and a 0.5 chance of receiving $12,500.
a. Draw (on a piece of graph paper) four points on the utility function of this publishing executive.
b. Does she seem to be a risk averter, a risk lover, or risk- neutral? Explain.