Comparing a lottery where a $1 ticket purchases a chance to win $1 million with another lottery in which a $5,000 ticket purchases a chance to win $5 billion, we notice many people would participate in the first but not the second, even though the odds of winning both lotteries are the same.We can perhaps best explain this outcome by:
A)Higher expected value for the lottery paying $1 million
B)Higher expected value for the lottery paying $5 billion
C)Lower value at risk for the lottery paying $1 million
D)Higher value at risk for the lottery paying $1 million

Question

Quizplus · Accepted Answer

Lower value at risk for the lottery paying $1 million. The lower ticket price and lower potential winnings of the first lottery make it feel less risky for participants. While the odds may be the same, the large price tag of the second lottery may deter individuals from participating because the potential loss is greater.

Comparing a Lottery Where a $1 Ticket Purchases a Chance