Ronald has $18,000. But he is forced to bet it on the flip of a fair coin. If he wins he has $36,000. If he loses he has nothing. Ronald's expected utility function is .5x.5 + .5y.5, where x is his wealth if heads comes up and y is his wealth if tails comes up. Since he must make this bet, he is exactly as well off as if he had a perfectly safe income of
A) $16,000.
B) $15,000.
C) $12,000.
D) $11,000.
E) $9,000.
Correct Answer:
Verified
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