Xavier, Yolanda, and Zachary Are Considering Whether to Pool Their

Multiple Choice

Xavier, Yolanda, and Zachary are considering whether to pool their funds to buy into a lottery. There is a 20% chance that they will win big and make $8 million dollars, a 40% chance that they will win second prize and make $2 million, and a 40% chance that they will lose and win nothing. The entrance fee to participate in this lottery is $2 million. The partners decide whether or not to play by majority vote. Assume that Xavier has utility function u(x) = x². The other two partners have utility function u(x) = x, where x is the total amount of money won in the lottery. Will the partners buy in?

A) All three will vote to buy in, so the partnership as a whole will buy in
B) Only Xavier will vote to buy in, so the partnership as a whole will not buy in
C) Yolanda and Zachary will vote to buy in, so the partnership as a whole will buy in