第一章1. Differentiate the following terms/concepts: a.Prospect and probability distribution A prospect is a lottery or series of wealth outcomes, each of which is associated with a probability, whereas a probability distribution defines the likelihood of possible outcomes. b.Risk and uncertainty Risk is measurable using probability, but uncertainty is not. Uncertainty is when probabilities can ’ t be assigned or the possible outcomes are unclear.c.Utility function and expected utility A utility function, denoted as u(), assigns numbers to possible outcomes so that preferred choices receive higher numbers. Utility can be thought of as the satisfaction received from a particular outcome. d.Risk aversion, risk seeking, and risk neutrality Risk aversion describes someone who prefers the expected value of a lottery to the lottery itself. Risk seeking describes someone who prefers a lottery to the expected value of a lottery. And risk neutrality describes someone whose utility of the expected value of a lottery is equal to the expected utility of the lottery. 2. When eating out, Rory prefers spaghetti over a hamburger. Last night she had a choice of spaghetti and macaroni and cheese and decided on the spaghetti again. The night before, Rory had a choice between spaghetti, pizza, and a hamburger and this time she had pizza. Then, today she chose macaroni and cheese over a hamburger. Does her selection today indicate that Rory ’ s choices are consistent with economic rationality? Why or why not?Rory ’s preferences are consistent with rationality. They are complete and transitive. We see that her preference ordering is: Pizza spaghetti macaroni and cheese hamburger 3. Consider a person with the following u...