Consider an individual whose utility function is (x), where x is the money prize he wins.
He is offered the following lottery: win $100 with a probability 0.25, $10 with probability 0.5, and $0 with probability 0.25
Assume that (0)=0,and (100)=1and this individual is risk neutral.
A. Compute the expected value of this lottery.
B. Compute the certainty equivalent of this lottery.
C. How about (10)