Jane has utility function over her net income U (I ) = I
What are Jane's preferences towards risk? Is she risk averse, risk neutral or risk loving? [Explain briefly your answer]
Jane drives to work every day and she spends a lot of money in parking meters. Many days the thought of cheating and not paying for parking crosses her mind. However she knows that there is a ¼ probability of being caught in a given day if she cheats, and that the cost of the ticket is $36. Her daily income is $100.
Paul also faces the same dilemma every single day. But he has a utility function U(I). His daily income is also $100.What are Paul's preferences towards risk? Is he risk averse, risk neutral or risk loving?
If the price of one day parking is 9.25, will Paul cheat or pay the parking meter? Will Jane cheat or pay the parking meter under this price