-The above figure shows Bob's utility function.He currently has $50 and is considering an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.Bob will make the investment
A)if it costs less than $50.
B)if it costs less than $30.
C)if it is a fair game.
D)under no circumstances.

Question

-The above figure shows Bob's utility function.He currently has $50 and is considering an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.Bob will make the investment
A)if it costs less than $50. 
B)if it costs less than $30. 
C)if it is a fair game. 
D)under no circumstances.

Quizplus · Accepted Answer

Bob will make the investment if the cost is less than $30 because the expected value of the investment is $50 (0.5 * $100 + 0.5 * $0), and he will only invest if the cost is less than the expected value to ensure a positive expected utility.

-The Above Figure Shows Bob's Utility Function