Why are risk preferences important for economic policy

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Reference no: EM131246402

Mary's utility function is: U = ?x (cube route of x). She is faced with a lottery where she has a 50 percent chance of winning $8 and 50 percent chance of winning $64.

a. What is the expected value of the lottery?

b. What is Mary's expected utility?

c. Now Mary is given the option to accept $8 for sure instead of participating in the lottery. Which will she choose? why?

d. Why are risk preferences important for economic policy?

Reference no: EM131246402

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