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A Decision-Maker Is Faced with a Choice Between a Lottery U=IU = \sqrt { I }

Question 22

Multiple Choice

A decision-maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a 70% chance of a payoff of $80, and a guaranteed payoff of $65. If the decision maker's utility function is U=IU = \sqrt { I } what is the risk premium associated with this choice?


A) $1.59
B) $2.52
C) $0
D) $3.95

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