Prufrock is risk averse.He is offered a gamble in which with probability 1/4 he will lose $1,000 and with probability 3/4, he will win $500.
A)Since he is risk averse, he will certainly not take the gamble.
B)Since the expected value of the gamble is positive, he will certainly take the gamble.
C)If Prufrock's initial wealth is greater than $1,500, he will certainly take the gamble.
D)If Prufrock's initial wealth is smaller than $1,500, he will certainly not take the gamble.
E)Not enough information is given to determine for sure whether he will take the gamble.

Question

Quizplus · Accepted Answer

Being risk-averse means Prufrock prefers avoiding losses over acquiring equivalent gains, but this does not directly correlate with his decision to take the gamble, as it depends on his utility function and not just on the expected value or his initial wealth.

Prufrock Is Risk Averse