-Marylou, whose utility of wealth curve is shown in the figure above, faces two options. Option A yields her $200 for sure. Option B has a 0.4 probability of yielding $100 and a 0.6 probability of yielding $300. Marylou
A) picks option A.
B) picks option B.
C) is indifferent between option A and option B.
D) needs more information to make a choice.

Question

-Marylou, whose utility of wealth curve is shown in the figure above, faces two options. Option A yields her $200 for sure. Option B has a 0.4 probability of yielding $100 and a 0.6 probability of yielding $300. Marylou
A) picks option A. 
B) picks option B. 
C) is indifferent between option A and option B. 
D) needs more information to make a choice.

Quizplus · Accepted Answer

Marylou's utility of wealth curve suggests she is risk-averse. Option A provides a certain outcome of $200, while Option B involves risk with expected value of $220. However, due to her risk aversion, she prefers the certainty of $200 over the risky option with a higher expected value.

-Marylou, Whose Utility of Wealth Curve Is Shown in the Figure