Figure 27-2.The figure shows a utility function for Britney.
-Refer to Figure 27-2.Suppose Britney begins with $1,050 in wealth.Which of the following coin-flip bets would she definitely not be willing to accept?
A)If it is "heads," she wins $100;if it is tails,she loses $95.
B)If it is "heads," she wins $150;if it is tails,she loses $150.
C)If it is "heads," she wins $150;if it is tails,she loses $140.
D)She definitely would not accept any of these bets.

Question

Figure 27-2.The figure shows a utility function for Britney. 
-Refer to Figure 27-2.Suppose Britney begins with $1,050 in wealth.Which of the following coin-flip bets would she definitely not be willing to accept?
A)If it is "heads," she wins $100;if it is tails,she loses $95. 
B)If it is "heads," she wins $150;if it is tails,she loses $150. 
C)If it is "heads," she wins $150;if it is tails,she loses $140. 
D)She definitely would not accept any of these bets.

Quizplus · Accepted Answer

According to Britney's utility function, she is risk-averse, meaning she values losses more than gains of the same magnitude. In option A, she stands to gain $100 but only lose $95, which is a net positive gain. Option C implies a net gain of $10. However, option B presents a net loss of $300 if she loses, which is a large potential loss that she is not willing to accept. Therefore, Britney would definitely not be willing to accept option B.