-Nancy's utility of wealth curve is given in the above figure. Option A gives Nancy $100 for sure. Option B gives Nancy $50 half the time and $150 half the time. Nancy's expected utility of option A
A) is greater than the expected utility of option B.
B) is the same as the expected utility of option B.
C) is less than the expected utility of option B.
D) could be either greater or less than the expected utility of option B.

Question

-Nancy's utility of wealth curve is given in the above figure. Option A gives Nancy $100 for sure. Option B gives Nancy $50 half the time and $150 half the time. Nancy's expected utility of option A
A) is greater than the expected utility of option B. 
B) is the same as the expected utility of option B. 
C) is less than the expected utility of option B. 
D) could be either greater or less than the expected utility of option B.

Quizplus · Accepted Answer

Nancy's utility of wealth curve is concave, indicating risk aversion. The certain $100 (Option A) provides higher utility than the expected utility of the risky Option B, which averages to $100 but with less utility due to risk aversion.

-Nancy's Utility of Wealth Curve Is Given in the Above