X pays a yearly salary of $52,000, regardless of thestate of the economy. Job Y pays a yearly salary of$10,000 in a bad economy and $70,000 in a goodeconomy. The probability of a bad economy is 0.30.Which job would most people prefer?
A)Job Y because the expected payoff is $70,000 seventy percent of the time.
B)Job X because it is more certain than the $52,000 expected payoff of Job Y.
C)Job X because $52,000 exceeds the expected payoff of Job Y by $3,000.
D)Job Y because the expected payoff of $70,000 is greater than $55,000.

Question

Quizplus · Accepted Answer

Most people would prefer Job X because it provides a stable salary of $52,000, regardless of the state of the economy, as compared to Job Y, which has a variable salary depending on the state of the economy. While Job Y has a higher expected payoff of $55,000 (calculated as 0.7 x $70,000 + 0.3 x $10,000), that payoff is not certain and may not be worth the risk for some individuals. As such, Job X is the more attractive option for most people.

X Pays a Yearly Salary of $52,000, Regardless of Thestate