If a person chooses to take $100 in cash instead of betting it to win $210 on the toss of a coin, that person is:
A) risk averse.
B) risk neutral.
C) a risk seeker.
D) indifferent to risk.

Question

Quizplus · Accepted Answer

The expected outcome of betting $100 to win $110 on the toss of a coin is 0.5 * $210 * 0.5 * $100 = $5, which is better than a fair game. In the long run a person would gain from playing such a game, but on a single toss of a coin there is a 50% chance of losing $100 and a 50% chance of gaining $110. A person who decides not to play the game for fear of losing is described as risk averse.

If a Person Chooses to Take $100 in Cash Instead