Risk-averse gold prospector who has struck it rich

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Lucky Midas is a risk-averse gold prospector who has struck it rich. He has $W worth of gold— his only wealth—safely stashed away on his claim in the Yukon. He wants to get his gold from his claim to the big city where he hopes to spend it. His friend Pandora will transport the gold for him free of charge. With probability q, all the gold on any trip will be stolen; with probability 1- q, none of it will be stolen. Show that Lucky’s expected utility is larger if half the gold is transferred in each of two trips than if all the gold is transferred in a single trip.

Reference no: EM13739775

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