Why do people buy both insurance and lottery tickets? O people can change their risk attitudes based on the nature of the prospect O people use a reference point to evaluate gains and losses and in turn a prospect O people exhibit loss aversion and place more weight on losses than gains O The "fourfold pattern of risk attitude"

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Anne has $138.40 and is thinking about buying a lottery ticket. The lottery pays $4.00 with probability 0.20 and $172.00 with probability 0.80. To buy the ticket, Anne would need to spend all her money. Suppose we observe Anne buying the ticket. What can we infer about Anne? Choose one: O A. We cannot infer that Anne is risk neutral. O B. We can infer that Anne is not risk averse. O C. We cannot infer anything. O D. We can infer that Anne is risk averse.

Janet's broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w + 4 or w – 2, each equally likely. She is indifferent between buying the ticket and not buying it. Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Which of the following statements is true? O a. There are risk averse expected utility maximisers who would prefer Janet's idea to Sam's idea. O b. Any expected utility maximiser whose utility is a strictly increasing function of wealth would prefer Sam's idea to Janet's idea. O c. Any risk averse expected utility maximiser would prefer Sam's idea to Janet's idea. O…