Given a choice between two investments with the same expected payoff most people will:
A) choose the one with the lower standard deviation.
B) opt for the one with the higher standard deviation.
C) be indifferent since the expected payoffs are the same.
D) calculate the variance to assess the relative risks of the two choices.

Question

Quizplus · Accepted Answer

Most people would choose the investment with the lower standard deviation because it indicates that the returns are more consistent and predictable, and therefore less risky. Even if the expected payoffs are the same, the investment with a higher standard deviation carries more uncertainty and potential for larger losses.

Given a Choice Between Two Investments with the Same Expected