Suppose a risk averse person is given the choice between the following lotteries: L₁ = {(-200, 0.5), (200,0.5)}; L₂ = {(-100, 0.5), (100, 0.5)}; L₃ = {(-100, 0.8), (400, 0.2)}, where the first parameter is the payoff and the second the probability. Which lottery will he/she prefer?

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Answer To determine which lottery a riskaverse person would prefer we can calculate the expected ... View the full answer