Consider the following scenarios. For each scenario, determine whether a risk averse person will definitely choose Option

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Consider the following scenarios. For each scenario, determine whether a risk averse person will definitely choose Option A, definitely choose Option B, be indifferent between Options A and B, or might choose either Option A or B.

a. Option A: There is a 50% chance of winning $1,000 and a 50% chance of winning $0. Option B: There is a 100% chance of receiving $500.

b. Option A: There is a 40% chance of winning $90 and a 60% chance of winning $110. Option B: There is a 100% chance of winning $90.

c. Option A: There is a 50% chance of winning $0 and a 50% chance of winning $100. Option B: There is a 50% chance of winning $20 and a 50% chance of winning $60.

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Microeconomics

ISBN: 978-1259813337

2nd edition

Authors: Dean S. Karlan, Jonathan J. Morduch

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