Strategy A has an expected value of 10 and a standard deviation of 3. Strategy B has an expected value of 10 and a standard deviation of 5. Strategy C has an expected value of 15 and a standard deviation of 10. Which one of the following statements is true?
A) A risk-averse decision maker will always prefer A to B, but may prefer C to A.
B) A risk-neutral decision maker will always prefer C to A or B.
C) A risk-seeking decision maker will always prefer C to A or B.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

A risk-averse decision maker prefers lower risk for the same expected value, hence would prefer A (lower standard deviation) over B but might consider C for its higher expected value despite higher risk. A risk-neutral decision maker focuses solely on expected value, thus preferring C for its highest expected value. A risk-seeking decision maker prefers higher risk for potentially higher rewards, thus would also prefer C. Therefore, all statements are correct.

Strategy a Has an Expected Value of 10 and a Standard