Faced with the gamble: heads you win $100; tails you lose $50, we would predict that a risk-neutral person would

Question

Quizplus · Accepted Answer

A risk-neutral person is not affected by the risk involved in the decision, but is only concerned with the potential payout. In this scenario, the expected value of the gamble is positive, as ($0.5 * $100) - ($0.5 * $50) = $25. As such, a risk-neutral person would take the gamble, as the potential gain outweighs the potential loss.

Faced with the Gamble: Heads You Win $100; Tails You