Assignment 2: Econ 177
Professor Garratt
Consider the following two payment options:
Scenario A: A gamble that pays $100 with probability p and $0 with probability (1p).
Scenario B: A payment of $x with probability 1.
In the table below, for each cash amount x, write down the probability p at which you would be
indifferent between the payment options described in Scenario A and B. As a guide to get started,
consider the case where x = 10. Answer the following questions by circling True or False.
1. I would prefer $10 for sure to a gamble that pays $100 with probability .05. T or F
2. I would prefer $10 for sure to a gamble that pays $100 with probability .1. T or F
3. I would prefer $10 for sure to a gamble that pays $100 with probability .2. T or F
4. I would prefer $10 for sure to a gamble that pays $100 with probability .3. T or F
5. I would prefer $10 for sure to a gamble that pays $100 with probability .4. T or F
Suppose you circled T for questions 13 and F for questions 4 and 5. Then the value of p that you
put in the table below next to $10 should be somewhere between .2 and .3.
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 Fall '09
 GARRATT
 Utility, $0, $30

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