Jill is a risk-averse expected-utility maximizer.Jack offers her the following bet: he will toss a coin and pay her $5 if it comes down heads,but if it comes down tails,Jill will have to pay him $5.Even though heads and tails are equally likely,Jill will not take the bet.

Question

Quizplus · Accepted Answer

Jill is risk-averse, which means she prefers certainty over uncertainty, even if the expected value of the uncertain option is positive. In this case, the expected value of the bet is 0, since the payoff in either outcome is $5 with a probability of 1/2. However, there is still risk involved, and since Jill is risk-averse, she will not take the bet.

Jill Is a Risk-Averse Expected-Utility Maximizer