expected utility - sum of utilities of all possible incomes weighted by probability  

• E(u) = (probabilty1)(utility1) + (probability2)(utility2)...
• different expected values/risks >> depends on individual
  • find utility/happiness obtained by risk
• risk averse - person always prefers given income compared to risky income
  • risk >> diminishing marginal utility of income
  • 1st earned dollar not as attractive as 2nd
• risk-loving - prefers uncertain income to certain
• no preference between certain/uncertain income >> risk neutral (usually never possible)
  • has constant marginal utility of income

• risk averse
• risk loving
• risk neutral

risk premium - max money person willing to give up to avoid risk  

• variability increase >> risk premium increase
• difference in value between certain value and expected value at the same utility

• marginal utility
• expected value curve
• expected value
• certain value
• risk premium