Abettor with utility function u(x) = ln(x), where x is total wealth, has a choice between the following two alternatives:
a. win $ 10,000 with probability 0.2
win $1000 with probability 0.8 b
b. win $3000 with probability 0.9
lose $2000 with probability 0.1
1. if the bettor currently has $2500, should he choose a or b?
2. repeat a, assuming the bettor has $5000.
3. repeat a, assuming the bettor has $10,000.
4. do you think that this pattern of choices between a and b is reasonable? why or why not?