Question: The following function describes an unknown gambler's utility of wealth function
u(w) =w^2
where w is the gambler's wealth. Answer the following questions assuming the gambler has $300 of wealth initially.
a. How would you describe this person's preferences for risk? Show your work and explain how you arrived at your answer.
b. Suppose this person is offered a gamble on Thursday's soccer match between UF and Florida State. A bet on the Gators pays $100 if they win, but you must pay $150 if they lose. The probability the Gators win is 60%. Is this an actuarially fair gamble?
c. The Gambler bets on the Gators. Find this person's expected utility from taking this gamble.
d. Suppose the gambler must pay $20 in order to make this bet. Will they take the gamble? Show your work and explain your answer.