Should you make the investment

Reference no: EM131250855

Suppose you are a risk-averse decision maker with a utility function given by

where I denotes your monetary payoff from an investment in thousands. You are considering an investment that will give you a payoff of $10,000 (thus, I = 10) with probability 0.6 and a payoff of $5,000 (I = 5) with probability 0.4. It will cost you $8,000 to make the investment. Should you make the investment? Why or why not?

Reference no: EM131250855

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