Hillary and Bill are playing backgammon.Hillary offers to place a wager on the game's outcome at fair odds.Bill is risk-averse and believes that he has a 60% chance of winning the game.When will Bill accept the wager?
A) Always.
B) When the wager is sufficiently small.
C) When the wager is sufficiently large.
D) Never.

Question

Quizplus · Accepted Answer

Bill is risk-averse and believes that he has a 60% chance of winning the game, which means he has a 40% chance of losing. Since the wager is offered at fair odds, the amount of the wager should be such that the expected value of the wager is zero. Therefore, Bill should accept the wager only when the potential gain is sufficiently small, since the potential loss is greater than the potential gain.

Hillary and Bill Are Playing Backgammon