Up to what amount would a risk-neutral gambler pay to enter a game where on the flip of a fair coin, if you call the correct outcome the payoff is $2,000?
A) More than $1000 but less than $2000.
B) Up to $2,000.
C) Up to $1,000.
D) More than $1,500.

Question

Quizplus · Accepted Answer

Since the coin is fair, the expected value of the payoff is: 
(1/2) x $2,000 + (1/2) x $0 = $1,000.

A risk-neutral gambler would be willing to pay up to the expected value of the payoff, hence up to $1,000 to enter the game. Therefore, the best choice is C.

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