(Kreps 1988, problem 7) Suppose a decision maker has constant absolute risk aversion over the range −$100 to $1000. We ask her for her certainty equivalent for gamble with prizes $0 and $1000, each with probability one-half, and she says that her certainty equivalent for this gamble is $488. What, then, should she choose, if faced with the choice of:
a: a gamble with prizes −$100, $300, and $1000, each with probability 1/3;
a : a gamble with prize $530 with probability 3/4 and $0 with probability 1/4; or
a: a gamble with a sure thing payment of $385?