### Find the total wealth

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##### Reference no: EM131524529

Question: A bettor with utility function U(x) = ln(x), where x is total wealth, has a choice between the following two alternatives:

A Win \$10,000 with probability 0:2

Win \$1,000 with probability 0:8

B Win \$3,000 with probability 0:9

Lose \$2,000 with probability 0:1

a. If the bettor currently has \$2,500, should he choose A or B?

b. Repeat a, assuming the bettor has \$5,000.

c. Repeat a, assuming the bettor has \$10,000.

d. Do you think that this pattern of choices between A and B is reasonable? Why or why not?

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