Suppose Chris is offered the following gamble: with probability 0.1 he will win $90, with probability 0.4 he will win $50, and with probability 0.5 he will lose $60. Chris will:
A)accept this gamble if he is risk-averse, but not if he is risk-neutral.
B)accept this gamble if he is risk neutral, but not if he is risk-averse.
C)accept this gamble if he is either risk neutral or risk-averse.
D)not accept this gamble if he is risk-neutral.

Question

Quizplus · Accepted Answer

A risk-neutral person will only accept a gamble if it is fair or better-then-fair. Since the expected value of this gamble is less than zero, no risk-neutral person would accept this gamble.

Suppose Chris Is Offered the Following Gamble: with Probability 0