Consider the following risky prospect: The expected utility is equal to:
A)$30,000.
B)18.
C)20.
D)24.
E)$34,000.

Question

Consider the following risky prospect:  The expected utility is equal to:
A)$30,000. 
B)18. 
C)20. 
D)24. 
E)$34,000.

Quizplus · Accepted Answer

The risky prospect can be rewritten as (0.3, 20) + (0.7, 0). The expected utility of (0.3, 20) is 6 and the expected utility of (0.7, 0) is 0. Therefore, the overall expected utility is 6. Option C offers an expected utility of 20, which is greater than 6 and thus the best choice.

Consider the Following Risky Prospect: the Expected Utility Is