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[Step-by-Step] We discussed decreasing and constant risk aversion. Are there other possibilities? Think about this as you work through this problem. Suppose

Question: We discussed decreasing and constant risk aversion. Are there other possibilities? Think about this as you work through this problem.

Suppose that a person's utility function for total wealth is

\[\mathrm{U}(A)=200 A-A^{2} \quad \text { for } 0 \leq A \leq 100\]

where \(A\) represents total wealth in thousands of dollars.

a Graph this preference function. How would you classify this person with regard to her attitude toward risk?

b If the person's total assets are currently $10 K, should she take a bet in which she will win $10 K with probability 0.6 and lose $10 K with probability 0.4?

C If the person's total assets are currently $90 K, should she take the bet given in part b?

d Compare your answers to parts b and c. Does the person's betting behavior seem reasonable to you? How could you intuitively explain such behavior?

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