The continuity assumption holds that consumers facing risky decisions:
A)can choose only if the values of outcomes are continuous.
B)can be indifferent between a risky and a certain prospect.
C)require only the assumptions required under certainty.
D)prefer them to certain prospects.

Question

Quizplus · Accepted Answer

The continuity assumption holds that consumers facing risky decisions can be indifferent between a risky and a certain prospect. This assumption is based on the idea that consumers can assign a value to every possible outcome in a continuous manner, meaning they are willing to accept intermediate probabilities that lie between two possible probabilities. This assumption helps to simplify the analysis of risky decisions and allows for the use of calculus to determine the optimal decision given a set of probabilities and payoffs.

The Continuity Assumption Holds That Consumers Facing Risky Decisions