Q1. Given the choice between A($1000, p = 1.0) and B($1200, p=0.90), Kathy prefers gamble A. Does this mean she is risk averse? Explain. When offered C ($1000, p=0.20) and D($1200, p=0.18), she prefers gamble D. Show that these choices are inconsistent with expected utility maximization.
Q2. Sharon buys a ticket in a small lottery. There is a probability of 0.7 that she will win nothing, of 0.2 that she will win $10, and of 0.1 that she will win $50. What is the expected value of Sharon's winnings?