Reddito atteso, utilità attesa e avversione al rischio I

Consider a hypothetical scenario where Neil is offered a job at a company.

The income associated with the job is uncertain. If he performs well, he receives an annual salary of $81,000. Otherwise, his salary is $49,000. There is an equal probability of 0.5 for each outcome.

Expected income is calculated using the expected value analysis. 

Neil’s expected income is the product of 0.5 and $81,000 added to the product of 0.5 and  $49,000, resulting in $65,000.

To calculate the expected utility, the utility values corresponding to Neil's different income levels are required, which are shown on the graph.

Like most people, Neil experiences diminishing marginal utility of income. 

This analysis provides insights into how Neil's utility changes with income and sets the foundation for evaluating his expected utility under uncertainty.