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Question
Suppose that, in an experimental setting, 100 students are asked to choose between Gamble A and Gamble B, where:
Gamble A: The student will receive $5 million with a 100 percent probability.
Gamble B: The student will receive $5 million with a 50 percent probability, $10 million with a 25 percent probability, and $0 million (nothing) with a 25 percent probability.
A risk-neutral student is
a. likely to choose Gamble A because it has a higher expected value.
b. likely to choose Gamble B because it has a higher expected value.
c. likely to choose Gamble A because the student will win something (as opposed to nothing) with a higher probability.
d. likely to choose Gamble B because the student will win something (as opposed to nothing) with a higher probability.
e. indifferent toward both Gambles A and B because they have the same expected value.
Answer
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