Q2Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally.Q3Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Recall Janet's proposal from Question 2 and Sam's solution from Question 3. Which of the following statements is true?а.There are risk averse expected utility maximisers who would prefer Janet's idea to Sam's idea.b. Any expected utility maximiser whose utility is a strictly increasing function of wealth would prefer Sam's idea toJanet's idea.С.Any risk averse expected utility maximiser would prefer Sam's idea to Janet's idea.d. Any expected utility maximiser would be indifferent between Janet's idea and Sam's idea.

It is assumed that Janet and Sam have identical preferences, i.e., they are both risk-averse. When a…

Answered: Recall Janet's proposal from Question 2…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally.

Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally.

Recall Janet's proposal from Question 2 and Sam's solution from Question 3. Which of the following statements is true?
а.
There are risk averse expected utility maximisers who would prefer Janet's idea to Sam's idea.
b. Any expected utility maximiser whose utility is a strictly increasing function of wealth would prefer Sam's idea to
Janet's idea.
С.
Any risk averse expected utility maximiser would prefer Sam's idea to Janet's idea.
d. Any expected utility maximiser would be indifferent between Janet's idea and Sam's idea.

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