Anna is considering an investment that has a 50% chance of providing a positive return of utility worth $5,000 and a 50% chance of a loss of utility worth $5,000. When the probability of a positive return rises to 60% and a negative return falls to 40%, her expected utility rises from _____ to _____.

Question

Quizplus · Accepted Answer

Initially, the expected utility is (0.5 * $5,000) + (0.5 * -$5,000) = $0. When the probability of a positive return rises to 60%, the expected utility becomes (0.6 * $5,000) + (0.4 * -$5,000) = $1,000.

Anna Is Considering an Investment That Has a 50% Chance