Which of the following statements is incorrect?
A)A risk-averse decision maker will choose the alternative with the lowest variance among alternatives with identical expected utilities.
B)A risk-neutral decision maker will always choose the alternative with the lowest variance among alternatives with identical expected utilities.
C)A risk-loving decision maker will choose the alternative with the highest variance among alternatives with identical expected utilities.
D)The expected utility of a lottery is the expected value of the utility levels that the decision maker receives from the payoffs in the lottery.

Question

Quizplus · Accepted Answer

A risk-neutral decision maker will not factor in risk when making a decision and will always choose the alternative with the highest expected utility, regardless of variance. Therefore, statement B is incorrect, as a risk-neutral decision maker will always choose the alternative with the highest expected utility, regardless of variance. A risk-neutral decision maker will always choose the alternative with the highest expected utility, regardless of variance. The statement in option B is incorrect because a risk-neutral decision maker will not always choose the alternative with the lowest variance among alternatives with identical expected utilities.

Which of the Following Statements Is Incorrect