Assume that Janet is risk-averse.Which of the following bets is she more likely to accept,depending on the degree of risk aversion?
A)Win $40 one-fourth of the time,win $10 one-half of the time,and lose $40 one-fourth of the time
B)Win $40 one-fourth of the time,break even one-half of the time,and lose $40 one-fourth of the time
C)Win $20 one-fourth of the time,win $10 one-half of the time,and lose $20 one-fourth of the time
D)Win $20 one-fourth of the time,win $10 one-fourth of the time,and lose $20 one-fourth of the time

Question

Quizplus · Accepted Answer

Janet's risk aversion means she prefers less risk and is willing to sacrifice potential gains for a more certain outcome. Option C offers the smallest range of possible outcomes, with a max gain of $20 and a max loss of $20, making it the safest option. Option A has a higher potential gain but also a higher potential loss, which may be too risky for Janet. Option B has a similar risk profile to A, with a potential gain but also potential loss, while option D has a lower potential gain and loss, but still more risky than option C. Therefore, Janet is most likely to choose option C.

Assume That Janet Is Risk-Averse