Frank Forgione Has the Right to Enter a Contest Where

question 21

Multiple Choice

Frank Forgione has the right to enter a contest where he has a 50% chance of winning $50,000 and a 50% chance of losing $0.It costs Frank nothing to enter the contest.If he is willing to give up his right to enter the contest for a sure payment of $25,000, he is ___.

• A)a risk avoider
• B)an optimist
• C)a risk taker
• D)risk neutral (an EMV'er)
• E)a gambler

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Definitions:

Adverse Selection

A situation where sellers have information that buyers do not have, or vice versa, about some aspect of product quality.

Health Insurance

A type of insurance coverage that pays for medical and surgical expenses incurred by the insured individual, providing financial protection or reimbursement against losses from illness or injury.

Principal-Agent Problem

A dilemma in economics and organizational theory where one party (agent) is expected to act in the best interest of another party (principal) but may act in their own interest instead.

Profit Maximization

A business objective aiming to achieve the highest profit possible, guiding decisions on production, pricing, and investment.