Identify if the following are Risk Averse, Risk Nuetral, Risk Loving or not enough information is...

Identify if the following are Risk Averse, Risk Nuetral, Risk Loving or not enough information is supplied

A. Eliza is given the decision between either taking $50 for sure or taking a bet where she will flip a coin and if it lands heads she will RECEIVE $150 but if it lands tails she will have to PAY $25. She decides to take the $50 for sure. This means that Eliza is:

B. Gunther is given the decision between either taking $100 for sure or taking a bet where she will flip a coin and if it lands heads he will RECEIVE $150 but if it lands tails he will RECEIVE $25. He decides to flip the coin. This means that Gunther is:

C. Susan is given the decision between either taking $75 for sure or taking a bet where she will flip a coin and if it lands heads she will RECEIVE $150 but if it lands tails she will receive $10. She decides to take take the coin flip. This means that Susan is:

Solutions

Expert Solution

Eliza is given the decision between either taking $50 for sure or taking a bet where she will flip a coin and if it lands heads she will RECEIVE $150 but if it lands tails she will have to PAY $25. She decides to take the $50 for sure. This means that Eliza is:

Risk Averse as she is not inclined to take the risk

Gunther is given the decision between either taking $100 for sure or taking a bet where she will flip a coin and if it lands heads he will RECEIVE $150 but if it lands tails he will RECEIVE $25. He decides to flip the coin. This means that Gunther is:

Risk loving as he is ready to sacrifice $75 for winning $150

Susan is given the decision between either taking $75 for sure or taking a bet where she will flip a coin and if it lands heads she will RECEIVE $150 but if it lands tails she will receive $10. She decides to take take the coin flip. This means that Susan is:

Risk loving as she is ready to take greater risk of losing at least $65 if she does not win the bet

Rahul Sunny answered 1 year ago

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