Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 20

For each of the following scenarios, determine whether the decision maker is risk neutral, risk averse, or risk loving.
a. A manager prefers a 20 percent chance of receiving $1,400 and an 80 percent chance of receiving $500 to receiving $680 for sure.
b. A shareholder prefers receiving $920 with certainty to an 80 percent chance of receiving $1,100 and a 20 percent chance of receiving $200.
c. A consumer is indifferent between receiving $1,360 for sure and a lottery that pays $2,000 with a 60 percent probability and $400 with a 40 percent probability.