Suppose that,in an experimental setting,100 students are asked to choose between Gamble A and Gamble B,where:
Gamble A: The student will receive $5 million with a 100% probability.
Gamble B: The student will receive $5 million with a 50% probability,$10 million with a 25% probability,and $0 million (nothing) with a 25% probability.
A risk-neutral student is:
A) likely to choose Gamble A because it has a higher expected value.
B) likely to choose Gamble B because it has a higher expected value.
C) likely to choose Gamble A because the student will win something (as opposed to nothing) with a higher probability.
D) likely to choose Gamble B because the student will win something (as opposed to nothing) with a higher probability.
E) indifferent toward both Gambles A and B because they have the same expected value.
Correct Answer:
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