Your utility function is given by U = M1/2. What is the expected utility of the following coin toss: heads you win $81, tails you win $100?
A)90.5
B)19
C)9.5
D)0

Question

Quizplus · Accepted Answer

Expected value of winning is:
(1/2) x 81 + (1/2) x 100 = 90.5
Expected utility is the square root of expected value:
√90.5 ≈ 9.5
Therefore, the best choice is to take the coin toss, as it has the highest expected utility.

Your Utility Function Is Given by U = M1/2