Prufrock is risk averse. He is offered a gamble in which with probability he will lose $1,000 and with probability , he will win $500.
A) Since he is risk averse, he will certainly not take the gamble.
B) Since the expected value of the gamble is positive, he will certainly take the gamble.
C) If Prufrock's initial wealth is greater than $1,500, he will certainly take the gamble.
D) If Prufrock's initial wealth is smaller than $1,500, he will certainly not take the gamble.
E) Not enough information is given to determine for sure whether he will take the gamble.

Question

Prufrock is risk averse. He is offered a gamble in which with probability  he will lose $1,000 and with probability  , he will win $500.
A) Since he is risk averse, he will certainly not take the gamble. 
B) Since the expected value of the gamble is positive, he will certainly take the gamble. 
C) If Prufrock's initial wealth is greater than $1,500, he will certainly take the gamble. 
D) If Prufrock's initial wealth is smaller than $1,500, he will certainly not take the gamble. 
E) Not enough information is given to determine for sure whether he will take the gamble.

Quizplus · Accepted Answer

The Answer is E

Prufrock Is Risk Averse