Tyler lives in Anchorage and has loss averse preferences. Inparticular, Tyler values a gain of amount x as u(x) = x^(1/2) andvalues a loss of ?x as u(?x) = ?2x 1 2
(a) What is the maximum amount of money that Tyler would pay fora lottery that pays $1000 with probability 1/2 and $0 withprobability 1/2 ?
(b) What is the maximum amount of money that Tyler would pay toavoid playing a lottery that loses $1000 with probability 1/2 andloses $0 with probability 1/ 2 ?
(c) What is the maximum amount of money that Tyler would pay toavoid playing a lottery that loses $1000 with probability 1/2 andgains $1000 with probability 1/2 ?
