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Lise, a subject in an experiment, is given a gamble with a 1 in 3 chance of $45 and a 2 in 3 chance of $0

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Lise, a subject in an experiment, is given a gamble with a 1 in 3 chance of $45 and a 2 in 3 chance of $0.

1. (a) What is the expected value of this gamble? Show your work. (4 points).

2. (b) Define a certainty equivalent using words. (4 points).

3. (c) Suppose Lise reported that her certainty equivalent for this gamble was $8. Would you conclude she is risk averse, risk loving or risk neutral? Explain briefly.

4. (d) Lise is also given a gamble with a 1 in 3 chance of -$45 and a 2 in 3 chance of $0. Suppose a subject reported that her certainty equivalent for this gamble was -$8. Would you conclude the subject is risk averse, risk loving or risk neutral? Explain briefly.