Problem 2
Which of the following utility functions have the expected utility property? (a) \(u\left(c_{1}, c_{2}, \pi_{1}, \pi_{2}\right)=a\left(\pi_{1} c_{1}+\pi_{2} c_{2}\right)\) (b) \(u\left(c_{1}, c_{2}, \pi_{1}, \pi_{2}\right)=\pi_{1} c_{1}+\) \(\pi_{2} c_{2}^{2}$$(\mathrm{c}) u\left(c_{1}, c_{2}, \pi_{1}, \pi_{2}\right)=\pi_{1} \ln c_{1}+\pi_{2} \ln c_{2}+17\)
Problem 3
A risk-averse individual is offered a choice between a gamble that pays \(\$ 1000\) with a probability of \(25 \%\) and \(\$ 100\) with a probability of \(75 \%,\) or a payment of \(\$ 325 .\) Which would he choose?
Problem 5
Draw a utility function that exhibits risk-loving behavior for small gambles and risk-averse behavior for larger gambles.
Problem 6
Why might a neighborhood group have a harder time self insuring for flood damage versus fire damage?
