Willow,a risk-neutral person,is presented the following gamble: heads,she wins $2; tails,she loses $1.Willow should

Question

Quizplus · Accepted Answer

Willow should take the gamble since she is risk-neutral, which means she is indifferent between a certain payoff and a gamble with the same expected value. In this case, the expected value of the gamble is:
(0.5 x $2) + (0.5 x -$1) = $0.5
Since the expected value is positive, Willow should take the gamble. There is no need for insurance since the maximum loss is $1, which is less than the potential gain of $2.

Willow,a Risk-Neutral Person,is Presented the Following Gamble: Heads,she Wins $2;