John is not willing to pay $2 for a lottery that has an expected value of $3 while Ben is willing to pay $4 for the same lottery. What can we tell about John and Ben?
A) John is risk-seeker, Ben is risk-averse
B) John is risk-averse, Ben is risk-seeking
C) Both, John and Ben, are risk-seeking
D) Both, John and Ben, are risk-averse

Question

Quizplus · Accepted Answer

John's unwillingness to pay $2 for a lottery with an expected value of $3 indicates he is risk-averse, as he prefers not to risk losing money even when the expected outcome is positive. Ben's willingness to pay more than the expected value ($4 for a lottery worth $3) shows he is risk-seeking, as he is willing to accept a negative expected outcome for the chance of winning.

John Is Not Willing to Pay $2 for a Lottery