-Of the choices given below, Jimmy, whose utility of wealth schedule is given above, prefers
A) option A: $300 with certainty.
B) option B: 50 percent chance of $200 and 50 percent chance of $400.
C) option C: 50 percent chance of $200 and 50 percent chance of $700.
D) option D: 90 percent chance of $400 and 10 percent chance of $0.

Question

-Of the choices given below, Jimmy, whose utility of wealth schedule is given above, prefers
A) option A: $300 with certainty. 
B) option B: 50 percent chance of $200 and 50 percent chance of $400. 
C) option C: 50 percent chance of $200 and 50 percent chance of $700. 
D) option D: 90 percent chance of $400 and 10 percent chance of $0.

Quizplus · Accepted Answer

Jimmy prefers option A because it provides a certain outcome, which is often preferred by risk-averse individuals. Without the utility of wealth schedule, we assume risk aversion leads to preferring certainty over risky options with the same or higher expected value.

-Of the Choices Given Below, Jimmy, Whose Utility of Wealth