Assuming you are risk neutral, first answer the following two questions about your preferences: Scenario A: You are given $5,000 and offered a choice between receiving an extra $2,500 with certainty...

Please solve the last oneAssuming you are risk neutral, first answer the following two questions about your preferences:<br>Scenario A: You are given $5,000 and offered a choice between receiving an extra $2,500 with certainty or flipping a coin and getting $5,000 if heads or $0 if tails.<br>Which option do you prefer?<br>A The certain $2,500 is more valuable than the uncertain $5,000, I would choose the $2,500.<br>B. Both options have identical payoffs, so I am indifferent between the two options.<br>OC. The possibility of the $5,000 payoff is more valuable to me than the certain $2,500, I choose to fip a coin.<br>Scenario B: You are given $10,000 if you will make the following choice: return $2,500 or flip a coin and return $5,000 if heads and $0 if tails. Which option do you<br>prefer?<br>A The certain loss of $2,500 is more painful than the possible loss of $5,000, I choose to flip a coin.<br>B. The possibility of the loss of $5,000 is more painful to me than the certain loss of $2,500, I would choose the $2,500 certain loss.<br>C. Both options have identical payoffs, so I am indifferent between the two options.<br>Most people choose the sure $2,500 in the first case but flip the coin in the second. Why is this behavior is not consistent to a risk neutral person?<br>O A. The behavior is not consistent because a risk neutral person is always able to choose the less risky option.<br>B. The behavior is consistent because scenario B is riskier.<br>C. The behavior is not consistent because scenario B is riskier.<br>O D. The behavior is not consistent because the two experiments have equal payoffs.<br>

Extracted text: Assuming you are risk neutral, first answer the following two questions about your preferences: Scenario A: You are given $5,000 and offered a choice between receiving an extra $2,500 with certainty or flipping a coin and getting $5,000 if heads or $0 if tails. Which option do you prefer? A The certain $2,500 is more valuable than the uncertain $5,000, I would choose the $2,500. B. Both options have identical payoffs, so I am indifferent between the two options. OC. The possibility of the $5,000 payoff is more valuable to me than the certain $2,500, I choose to fip a coin. Scenario B: You are given $10,000 if you will make the following choice: return $2,500 or flip a coin and return $5,000 if heads and $0 if tails. Which option do you prefer? A The certain loss of $2,500 is more painful than the possible loss of $5,000, I choose to flip a coin. B. The possibility of the loss of $5,000 is more painful to me than the certain loss of $2,500, I would choose the $2,500 certain loss. C. Both options have identical payoffs, so I am indifferent between the two options. Most people choose the sure $2,500 in the first case but flip the coin in the second. Why is this behavior is not consistent to a risk neutral person? O A. The behavior is not consistent because a risk neutral person is always able to choose the less risky option. B. The behavior is consistent because scenario B is riskier. C. The behavior is not consistent because scenario B is riskier. O D. The behavior is not consistent because the two experiments have equal payoffs.
Jun 09, 2022
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here