Maria has the choice between either getting $15 for sure or getting $50 with probability 0.5...
Maria has the choice between either getting $15 for sure or getting $50 with probability 0.5 or nothing with probability 0.5. If Maria chooses the $10 for sure, she is a risk averse decision maker. True or False?
Homework Answers
This is true.
See in the second scheme she may get 50 or may get nothing. So there is a risk. But in first scheme she always gets 15 dollars for sure with no risk in it. So she is a risk averse person who avoids taking risk.
N.B. though in the 2nf scheme the expected gain is 50*.5=25 dollars which is more than 15 dollars of the first scheme. So a risk loving person must take the 2nd scheme.
Hope the solution helps. Thank you.
(Please comment if you need any further help)
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