In an experiment on risk aversion, a group of people were given the following choice: A)Lose $100 with certainty, or B)50% chance to win $50, 50% chance to lose $200.An overwhelming majority chose option B.This can be best explained by which of the following?
A)People have a greater aversion to loss than to risk.
B)Option B has a smaller expected loss than option A.
C)This behavior is consistent with risk aversion with losses.
D)Option B has an expected gain as opposed to certain loss with option A.
E)This behavior violates the Weak Axiom of Revealed Preference.

Question

Quizplus · Accepted Answer

A) People generally prefer to take a risk to potentially avoid a loss altogether, even if that risk could lead to a larger loss, rather than accepting a smaller, certain loss. This is because the pain of losing is felt more acutely than the equivalent joy of gaining, leading to risk-seeking behavior in the domain of losses.

In an Experiment on Risk Aversion, a Group of People