Q 13

Sally Kink is an expected utility maximizer with utility function pu(c_{1}) + (1 - p)u(c_{2}), where for any x < 8,000, u(x) = 2x, and for x greater than or equal to 8,000, u(x) = 16,000 + x.
A) Sally will never take a bet if there is a chance that it leaves her with wealth less than $16,000.
B) Sally will be risk neutral if her income is less than $8,000 and risk averse if her income is more than $8,000.
C) Sally will be risk averse if her income is less than $8,000 but risk loving if her income is more than $8,000.
D) For bets that involve no chance of her wealth exceeding $8,000, Sally will take any bet that has a positive expected net payoff.
E) None of the above.

Q 14

Sally Kink is an expected utility maximizer with utility function pu(c_{1}) + (1 - p)u(c_{2}), where for any x < 7,000, u(x) = 2x, and for x greater than or equal to 7,000, u(x) = 14,000 + x.
A) Sally will be risk averse if her income is less than $7,000 but risk loving if her income is more than $7,000.
B) Sally will be risk neutral if her income is less than $7,000 and risk averse if her income is more than $7,000.
C) Sally will never take a bet if there is a chance that it leaves her with wealth less than $14,000.
D) For bets that involve no chance of her wealth exceeding $7,000, Sally will take any bet that has a positive expected net payoff.
E) None of the above.

Q 15

Sally Kink is an expected utility maximizer with utility function pu(c_{1}) + (1 - p)u(c_{2}), where for any x < 1,000, u(x) = 2x, and for x greater than or equal to 1,000, u(x) = 2,000 + x.
A) Sally will be risk averse if her income is less than $1,000 but risk loving if her income is more than $1,000.
B) Sally will never take a bet if there is a chance that it leaves her with wealth less than $2,000.
C) Sally will be risk neutral if her income is less than $1,000 and risk averse if her income is more than $1,000.
D) For bets that involve no chance of her wealth exceeding $1,000, Sally will take any bet that has a positive expected net payoff.
E) None of the above.