Refer to the information provided in Figure 17.1 below to answer the question(s) that follow. Figure 17.1
-Refer to Figure 17.1. Dmitri has two job offers when he graduates from college. Dmitri views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $40,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $40,000. Dmitri believes that he has a 50-50 chance of earning the bonus. If Dmitri takes the offer that maximizes his expected utility and is he is risk averse, then
A) he will take the first offer.
B) he will take the second offer.
C) he is indifferent between the offers-both yield the same expected utility.
D) Indeterminate from the given information-we cannot say what he will do.

Question

Refer to the information provided in Figure 17.1 below to answer the question(s) that follow.  Figure 17.1
-Refer to Figure 17.1. Dmitri has two job offers when he graduates from college. Dmitri views the offers as identical, except for the salary terms. The first offer is at a fixed annual salary of $40,000. The second offer is at a fixed salary of $20,000 plus a possible bonus of $40,000. Dmitri believes that he has a 50-50 chance of earning the bonus. If Dmitri takes the offer that maximizes his expected utility and is he is risk averse, then
A) he will take the first offer. 
B) he will take the second offer. 
C) he is indifferent between the offers-both yield the same expected utility. 
D) Indeterminate from the given information-we cannot say what he will do.

Quizplus · Accepted Answer

Risk-averse individuals prefer a certain outcome over a gamble with the same expected value. The first offer guarantees $40,000, while the second has an expected value of $40,000 ($20,000 guaranteed plus a 50% chance of an additional $40,000) but with risk involved. Therefore, a risk-averse Dmitri would choose the first offer.

Refer to the Information Provided in Figure 17