What should you do if you are risk neutral

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Question - You have $100,000 to invest in a small business. If you open the business, the probability is .35 that you will make $300,000 (including your investment) and .65 that you will lose all your money. If you don't open the business, than you keep your $100,000 for sure. Chance moves before you do.

a. What should you do if you are risk neutral? Would your strategy change if the probability of success was .3 in stead of .35?

b. Redo part a, assume you are risk averse with a utility function U(m) = m1/3;

c. Redo part a, assume you are risk seeking with a utility function U(m) = m3. Explain the difference, if any, between the risk-averse, risk-seeking, and risk-neutral players.

Reference no: EM132179345

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