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UVA ECON 4170 - Lecture 9 Quiz

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Sp21 econ 4170 lecture 09 (quiz) Marc SantuginiSubmission Rules:1. You need to submit your answer to gradescope (accessible from Collab directly or via Teams).2. Your work must be detailed, neat, and legible.3. You are NOT required to print this document.4. You may discuss your answers with your classmates and myself.Josel and Kayla are both risk-averse. Kayla is more risk-averse than Josel.1. On the graph below, sketch several expected utility indifference curves for Josel and for Kayla(use different colors) that are consistent with the fact that Kayla is more risk-averse than Josel.It is useful to indicate the set of sure gambles and a few iso-mean curves.0 1 2 3 4 5 6 7 8 9 10w1012345678910w2Page 1 of 3Sp21 econ 4170 lecture 09 (quiz) Marc Santugini2. Consider now the gambles < 3, 5; 0.5, 0.5 > and < 1, 9; 0.5, 0.5 >. Suppose that Josel strictlyprefers < 3, 5; 0.5, 0.5 > to < 1, 9; 0.5, 0.5 >. Does it necessarily mean that Kayla strictly prefers< 3, 5; 0.5, 0.5 > to < 1, 9; 0.5, 0.5 > as well? Illustrate on the graph below by sketching Josel’sindifference curve going through < 3, 5; 0.5, 0.5 > and Kayla’s indifference curve going through< 3, 5; 0.5, 0.5 >. Remember that Kayla is more risk-averse than Josel!0 1 2 3 4 5 6 7 8 9 10w1012345678910w2Page 2 of 3Sp21 econ 4170 lecture 09 (quiz) Marc Santugini3. Consider again the gambles < 3, 5; 0.5, 0.5 > and < 1, 9; 0.5, 0.5 >. Suppose that Kayla strictlyprefers < 3, 5; 0.5, 0.5 > to < 1, 9; 0.5, 0.5 >. Show graphically that it is possible that Joselstrictly prefers < 1, 9; 0.5, 0.5 > to < 3, 5; 0.5, 0.5 > ? Again, illustrate on the graph belowby sketching Josel’s indifference curve going through < 3, 5; 0.5, 0.5 > and Kayla’s indifferencecurve going through < 3, 5; 0.5, 0.5 >. Remember that Kayla is more risk-averse than Josel!0 1 2 3 4 5 6 7 8 9 10w1012345678910w2Page 3 of


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