You are offered a choice between two lotteries, K and L:
Lottery K: You win $1,000 with complete certainty.
Lottery L: You win: $5,000 with probability .10
$1,000 with probability .75
$0 with probability .15
Compute the expected value of both lotteries, and indicate which you would choose. Explain your choice, using the concept of certainty equivalent.

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The Answer of You are offered a choice between two lotteries, K and L:
Lottery K: You win $1,000 with complete certainty.
Lottery L: You win: $5,000 with probability .10
$1,000 with probability .75
$0 with probability .15
Compute the expected value of both lotteries, and indicate which you would choose. Explain your choice, using the concept of certainty equivalent.

You Are Offered a Choice Between Two Lotteries, K and L