Pascal is risk-averse while Marion is risk-neutral. Both are confronted with the following gamble: win $5,000 with the probability of 65 percent or lose $9,000 with a probability of 35 percent. One can predict that:
A)both might accept the gamble.
B)only Pascal will accept the gamble.
C)only Marion will accept the gamble.
D)neither will accept the gamble.

Question

Pascal is risk-averse while Marion is risk-neutral. Both are confronted with the following gamble: win $5,000 with the probability of 65 percent or lose $9,000 with a probability of 35 percent. One can predict that: 
A)both might accept the gamble.
B)only Pascal will accept the gamble.
C)only Marion will accept the gamble.
D)neither will accept the gamble.

Quizplus · Accepted Answer

The expected value of this gamble is $100 = (0.65)($5,000)+ (0.35)(-$9,000). Since the expected value of this gamble is positive, Marion will definitely accept the gamble and Pascal might accept the gamble.

Pascal Is Risk-Averse While Marion Is Risk-Neutral