Part 1:
Entrepreneur Jones has a utility index of 5 for a loss of $1,000, and 12 for a profit of $3,000. He says that he is indifferent between $10 for certain and the following lottery: a 0.4 chance at a $1,000 loss and a 0.6 chance at a $3,000 profit. What is his utility index for $10?
Part 2:
Suppose that Smith has a utility function U(x) = x^(2/3) where x is in dollars (0 < x < 100). Smith is offered the following choices:
A: $8 for sure.
B: A lottery with a one-half chance for zero dollars and a one-half chance for $64.
Which choice would you predict Smith will choose?