What is the variance of the earnings from the lottery, Microeconomics

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What is the variance of the earnings from the lottery

Problem

Jenny is just indifferent between a lottery of {0, -$500; 1/2, 1/2} (i.e., a fifty percent chance of losing $500) and a paying a fee of $200

1. What is the expected earnings from this lottery?

2. What is the variance of the earnings from this lottery?

3. What is the risk premium Jenny assigns to avoiding this lottery?

4. Using the formula that we derived that relates a person's ARA (absolute risk aversion) to the risk premium, what is Jenny's ARA as revealed by this experiment?

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Microeconomics: What is the variance of the earnings from the lottery

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