‘Lottery A’ refers to a lottery ticket that pays $2,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $18,000 with a probability of 0.1. Lottery B pays $3,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $15,000 with a probability of 0.1. Which of the following is true? A) A risk-averse person would definitely prefer lottery A to lottery B.B) A risk-averse person would definitely prefer lottery B to lottery A.C) Whether a risk-averse person prefers lottery A to lottery B depends on his degree of risk-aversion.D) A risk-averse person would prefer to pay $50 to switch from lottery B to lottery A.E) We do not have enough information to judge whether any of the statements listed in A-D, above, are correct.

‘Lottery A’ refers to a lottery ticket that pays $2,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $18,000 with a probability of 0.1. Lottery B pays $3,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $15,000 with a probability of 0.1. Which of the following is true? A) A risk-averse person would definitely prefer lottery A to lottery B.B) A risk-averse person would definitely prefer lottery B to lottery A.C) Whether a risk-averse person prefers lottery A to lottery B depends on his degree of risk-aversion.D) A risk-averse person would prefer to pay $50 to switch from lottery B to lottery A.E) We do not have enough information to judge whether any of the statements listed in A-D, above, are correct.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.2IP

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