Stan, who is risk averse, can invest in project A or project B. Project A returns $3,000 with probability 1/2 and $9,000 with probability 1/2. Project B returns nothing with probability 1/2 and $12,000 with probability 1/2. For Stan, project A has
A) greater expected wealth and greater expected utility than project B.
B) lower expected wealth and lower expected utility than project B.
C) the same expected wealth and the same expected utility as project B.
D) the same expected wealth but higher expected utility than project B.

Question

Quizplus · Accepted Answer

Project A and B have the same expected wealth of $6,000, but since Stan is risk averse, he prefers the less risky project A, which has higher expected utility.

Stan, Who Is Risk Averse, Can Invest in Project a or Project