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Consider the following options: Lottery A. Take $1 million for sure . Lottery B. Get $5 million with probability 0.9 (and nothing otherwise)....

3. Consider the following options:


Lottery A. Take $1 million for sure .

Lottery B. Get $5 million with probability 0.9 (and nothing otherwise).

Lottery C. Get $1 million with probability 0.1 (and nothing otherwise).

Lottery D. Get $5 million with probability 0.9 (and nothing otherwise).


(By the way, how would you rank A vs. B and C vs D?)


For the DM to be consistent with Expected utility hypothesis, we must have


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q3.jpeg

Top Answer

I would rank B and D first, A second,... View the full answer

1 comment
  • How about A is strictly preferred to B if and only if D is strictly preferred to C ?
    • DukeScienceHedgehog3035
    • May 04, 2018 at 11:56pm

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