Assume, Elizabeth's Utility Function Is: U(W) = W^0

Multiple Choice

Assume, Elizabeth's utility function is: U(W) = W^0.5 and she operates under the tenets of expected utility theory. She is considering two job proposals:. Alternative 1: take a job at a bank with a certain salary of $54,000 per annum. Alternative 2: take a job with a start-up company, get a base salary of $4,000 per annum a plus a bonus of $100,000 per annum a with probability 0.5 (otherwise bonus = $0) .

A) Elizabeth should choose Alternative 1 over Alternative 2 since the former yields expected utility of 232.4 while the latter yields expected utility of 192.9.
B) Elizabeth should choose Alternative 2 over Alternative 1 since the former yields expected utility of 192.9 while the latter yields expected utility of 232.4.
C) Elizabeth should choose Alternative 1 over Alternative 2 since the former yields expected utility of 89.4 while the latter yields expected utility of 86.44.
D) Elizabeth should choose Alternative 2 over Alternative 1 since the former yields expected utility of 232.4 while the latter yields expected utility of 192.9.