Problem 3 Richard Risky bets some money on the result of a tennis game. If he wins his bet, he will get 200 and if he looses his bet, he will go home…

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Problem 3Richard Risky bets some money on the result of a tennis game. If he wins his bet, he will get200€ and if he looses his bet, he will go home with only 20€. The probability of winning hisbet is ⅓ and the probability of losing his bet is ⅔. His utility function is given by u(x) = x4/3 .a) Is Richard Risky risk-averse?b) Calculate the certainty equivalent of his bet!c) Compute the Arrow-Pratt measure of absolute and relative risk aversion!d) Calculate Richard Risky’s risk premium! Why is it difficult to model agents withRichard’s risk attitude in an economic context?

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