Question

Figure 27-2 The figure shows a utility function for Britney. Utility $750 $1,050 $1,350 Wealth 36. Refer to Figure 27-2 Suppose Britney begins with $1,050 in wealth. Which of the following coin-flip bets would she definitely not be willing to accept? O a. If it is "heads," she wins $100; if it is tails, she loses $95. b. If it is "heads," she wins $150; if it is tails, she loses 150. O c. If it is "heads," she wins $150; if it is tails, she loses $140. Od. She definitely would not accept any of these bets.

Answer 1

Ans.- (B)

Expected amount that he wins from :

Bet in option A = 0.5(100) +0.5(-95 ) =2.5

Bet in option B = 0.5(150)-0.5(150 )= 0

Bet in option C = 0.5(150)-0.5(140) =5

His expected amount that he can win is 0 in option B and he is an risk averse person so he won't accept bet given in option B.