Suppose Hillary was offered the following choice: Option 1 is to win $10 for sure and Option 2 is to win $20,000 with odds of 1 in 2,000 and otherwise to win nothing.If Hillary is risk loving she:
A) will choose Option 1.
B) will choose Option 2.
C) is indifferent between the two.
D) will choose Option 1 or Option 2 with equal probability.

Question

Quizplus · Accepted Answer

If Hillary is risk loving, she would prefer the option with higher expected value. 
Option 1 has an expected value of $10. 
Option 2 has an expected value of ($20,000 * 1/2,000) + ($0 * 1,999/2,000) = $10.
Since the expected value of Option 2 is higher than Option 1, Hillary would choose Option 2.

Suppose Hillary Was Offered the Following Choice: Option 1 Is