Jill is offered a choice between receiving $50 with certainty or possibly receiving the proceeds from a gamble. In the gamble a fair coin is tossed, and if it comes up heads, Jill will receive $100; if the coin comes up tails, she will receive nothing. Jill chooses the $50 instead of the gamble. Jill's behavior indicates ________.
A) regret avoidance
B) overconfidence
C) that she has a diminishing marginal utility of wealth
D) prospect theory loss aversion

Question

Quizplus · Accepted Answer

Jill's choice to take a guaranteed $50 instead of the gamble implies that she has a diminishing marginal utility of wealth. The expected value of the gamble is $50, but Jill is willing to give up the possibility of winning $100 in exchange for a sure $50. This suggests that the additional utility gained from winning an extra $50 is not worth the additional risk.

Jill Is Offered a Choice Between Receiving $50 with Certainty