3. Suppose the individual has a utility function In(c) where c is consumption and In(·) is the natural logarithm function (that is, logarithm with base e; which is a very popular utility function used...

Extracted text: 3. Suppose the individual has a utility function In(c) where c is consumption and In(·) is the natural logarithm function (that is, logarithm with base e; which is a very popular utility function used in both economics and finance research). Calculate the expected utility from each lottery. 4. For this specific example, which lottery offers higher value (in terms of expected utility) and what is it about the shape of the utility function that yields this result?


Extracted text: Consider two lotteries. Lottery A is such that an individual receives a prize of 1.25 units of a consumption good with 50% probability and 0.75 units of the consumption good with 50% probability. Lottery B presents the winner with a prize of 1.5 units of a consumption good with 50% probability and a prize of 0.5 units of the consumption good with 50% probability.