An individual has the following utility function: u(w) = w^.5 where w = wealth.
a. Using expected utility, order the following prospects in terms of preference, from the most to the least preferred:
P1 (.8, 1000, 600)
P2 (.7, 1200, 600)
P3 (.5, 2000, 300)
b. What is the certainty equivalent for prospect P2?
c. Without doing any calculations, would the certainty equivalent for prospect P1 be larger or smaller? Why?
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