There are two events, 1 and 2.The probability of event 1 is p and the probability of event 2 is 1 - p.Sally Kink is an expected utility maximizer with a utility function is pu(c₁)+ (1 - p)u(c₂), where for any number x, u(x)= 2x if x

Question

There are two events, 1 and 2.The probability of event 1 is p and the probability of event 2 is 1 - p.Sally Kink is an expected utility maximizer with a utility function is pu(c₁)+ (1 - p)u(c₂), where for any number x, u(x)= 2x if x < 1,000 and u(x)= 1,000 + x if x is greater than or equal to 1,000. A)Sally is a risk lover. B)Sally will be a risk averter if she is poor but will be a risk lover if she is rich. C)Sally will be a risk lover if she is poor but a risk averter if she is rich. D)If there is no chance of her wealth exceeding $1,000, then she will take any bet that has positive expected net winnings. E)None of the above.

Quizplus · Accepted Answer

The Answer of There are two events, 1 and 2.The probability of event 1 is p and the probability of event 2 is 1 - p.Sally Kink is an expected utility maximizer with a utility function is pu(c₁)+ (1 - p)u(c₂), where for any number x, u(x)= 2x if x < 1,000 and u(x)= 1,000 + x if x is greater than or equal to 1,000. A)Sally is a risk lover. B)Sally will be a risk averter if she is poor but will be a risk lover if she is rich. C)Sally will be a risk lover if she is poor but a risk averter if she is rich. D)If there is no chance of her wealth exceeding $1,000, then she will take any bet that has positive expected net winnings. E)None of the above.

There Are Two Events, 1 and 2