An individual whose utility function is given by $U \left( W _ { 1 } , W _ { 2 } \right) = min\left( W _ { 1 } , W _ { 2 } \right)$ (where W_i is wealth in state i)will A)never gamble no matter how favorable the odds. B)only gamble if the expected value of the bet is positive. C)gamble if the bet is not too unfair. D)always gamble,no matter how unfavorable the odds.

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Quizplus · Accepted Answer

The utility function $U(W_1, W_2) = \min(W_1, W_2)$ indicates that the individual is risk-averse and prefers to have equal wealth in both states. They will avoid gambling as it introduces risk and potential inequality in wealth across states.

An Individual Whose Utility Function Is Given By U(W1,W2)=min(W1,W2)U \left( W _ { 1 } , W _ { 2 } \right) = min\left( W _ { 1 } , W _ { 2 } \right)U(W1​,W2​)=min(W1​,W2​)

An Individual Whose Utility Function Is Given By $U \left( W _ { 1 } , W _ { 2 } \right) = min\left( W _ { 1 } , W _ { 2 } \right)$