Scenario 5.6:
Consider the information in the table below, describing choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.

-Refer to Scenario 5.6. If the doctor is risk-averse, she would accept:
A) $50,000 for sure rather than take the risk of being a researcher.
B) $60,000 for sure (the minimum HMO outcome) rather than take the risk of being a researcher.
C) $95,000 for sure rather than face option 1 and option 2 in research.
D) $275,000 for sure (the average of option 1 and option 2 in research), but not less, rather than face the risk of those two options.
E) the research position because it has the highest possible income.

Question

Scenario 5.6:
Consider the information in the table below, describing choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.
 
-Refer to Scenario 5.6. If the doctor is risk-averse, she would accept:
A) $50,000 for sure rather than take the risk of being a researcher. 
B) $60,000 for sure (the minimum HMO outcome) rather than take the risk of being a researcher. 
C) $95,000 for sure rather than face option 1 and option 2 in research. 
D) $275,000 for sure (the average of option 1 and option 2 in research), but not less, rather than face the risk of those two options. 
E) the research position because it has the highest possible income.

Quizplus · Accepted Answer

Risk-averse individuals prefer a certain outcome over a gamble with an equivalent expected value. Option C offers a sure amount that is less than the expected value of the research options, which is appealing to someone who is risk-averse.

Scenario 5.6: Consider the Information in the Table Below, Describing Choices for Choices