-Ashton Has the Utility of Wealth Curve Shown in the Above

question 228

Multiple Choice

-Ashton has the utility of wealth curve shown in the above figure. He owns a sports car worth $30,000, and that is his only wealth. Ashton is a careless driver and there is a 30 percent chance that he will have an accident within a year. If he does have an accident, his car is worthless. Ashton would have the same expected utility as he currently has if his wealth was ________ and he faced no uncertainty.

• A) $30,000
• B) $21,000
• C) $12,000
• D) $9,000

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Definitions:

Availability Heuristic

A mental shortcut that relies on immediate examples that come to a person’s mind when evaluating a specific topic, concept, method, or decision.

Representative Heuristic

A cognitive bias in which an individual categorizes a situation based on how similar it is to their prototype of a particular event or behavior, often leading to errors in decision making or judgment.

Stroop Effect

A psychological phenomenon that demonstrates the interference in reaction time when the name of a color is printed in a color not denoted by the name.

Isolated Letters

Individual alphabetic characters presented separately from words or sentences, often used in reading or perception studies.