Decisions Involving Uncertainty - End of Chapter Problem You are considering investing $2,000 in the stock market. If you invest, there is a 30% probability that your investment will be worth $3,000 in one month. There is a 70% probability that your investment will be worth $1,500 in one month. Alternatively, if you did not invest, you simply keep the $2,000. If you decide to invest, ☐ you are risk-neutral. you are risk-loving. it is impossible to tell whether you are risk-averse, risk-neutral, or risk-loving. ☐ you are risk-averse.

You are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald's or a Penn Station East Coast Subs franchise. McDonald's indicates that, based on the location where you are proposing to open a new restaurant, there is a 25 percent probability that aggregate 10-year profits (net of the initial investment) will be $16 million, a 50 percent probability that profits will be $8 million, and a 25 percent probability that profits will be -$1.6 million. The aggregate 10-year profit projections (net of the initial investment) for a Penn Station East Coast Subs franchise is $48 million with a 2.5 percent probability, $8 million with a 95 percent probability, and -$48 million with a 2.5 percent probability. Considering both the risk and expected profitability of these two investment opportunities, which is the better investment? Explain carefully.

Economics Shawn's consumption is subject to risk. With probability 0.75 he will enjoy 10000 in consumption, but with probability 0.25 he will have only 3600. His utility function for consumption is given by v(c) = Vc. -What is the expected value of Shawn's consumption? -What is his expected utility? -What is his certainty equivalent of having 10000 with probability 0.75 and 3600 with probability 0.25?

Sam, after taking a $200 loan from the bank to finance an investment that pays $1000 50% of the time and $0 50% of the time at a 100% interest, discovers another riskier investment that pays out $5,000 but only 10% of the time, while the other 90% of the time it pays zero. Would the he want to switch to the riskier investment?   Question 4 options:   ​Yes because his return has increased   ​No because his liability to the bank has increased   ​No because his return has decreased   ​None of the above