Pablo must choose among options A, B, and C. Option A gives him $10,000 for sure. Option B gives him $4,000 with probability 0.5 or $16,000 with probability 0.5. Option C gives him $8,000 with probability 0.5 or $12,000 with probability 0.5. If he receives diminishing marginal utility from wealth, Pablo will
A) choose option A.
B) choose option B.
C) choose option C.
D) be indifferent among options A, B, and C.

Question

Quizplus · Accepted Answer

With diminishing marginal utility, Pablo prefers a certain outcome over a risky one with the same expected value. Option A provides a certain $10,000, which is likely more valuable to him than the expected values of options B and C due to diminishing marginal utility.

Pablo Must Choose Among Options A, B, and C