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Suppose Your Current Wealth (W) Is $8000 and You Obey

Question 2

Multiple Choice

Suppose your current wealth (W) is $8000 and you obey the principles of expected utility theory. Suppose you are offered a gamble where you can win $5000 with one-half chance but you can lose $5000 with one half-chance. Suppose your utility function is defined as U(W) = W^0.5. (The square root of your wealth) . To you, the expected payoff from this gamble is:


A) 8,000.
B) 16,000.
C) 12,000.
D) 4,000

Correct Answer:

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