Suppose that Rick is fortunate enough to receive a gift from a family member of $5,000, which he may use as he does see fit. Rick is then offered a chance to receive an additional $2,000 with certainty, or a 50-50 chance of either $5,000 or $0.
(a) Which would Rick accept?
(b) Suppose instead that Rick has $10,000 in a bank account. He must now choose between
paying $3,000 with certainty or taking a 50-50 chance of loss of either $0 or $5,000. Which would Rick choose?
(c) Were Rick’s choices consistent? Explain why or why not.

Question

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The Answer of Suppose that Rick is fortunate enough to receive a gift from a family member of $5,000, which he may use as he does see fit. Rick is then offered a chance to receive an additional $2,000 with certainty, or a 50-50 chance of either $5,000 or $0.
(a) Which would Rick accept?
(b) Suppose instead that Rick has $10,000 in a bank account. He must now choose between
paying $3,000 with certainty or taking a 50-50 chance of loss of either $0 or $5,000. Which would Rick choose?
(c) Were Rick’s choices consistent? Explain why or why not.

Suppose That Rick Is Fortunate Enough to Receive a Gift