Consider the Following Prospects, in Which W₁ > W₂ >

question 48

Multiple Choice

Consider the following prospects, in which w₁ > w₂ > w₃; a: (1/3, 1/3, 1/3: w₁, w₂, w₃) ; b: (1/4, 1/2, 1/4: w₁, w₂, w₃) ; and c: (0, 1, 0: w₁, w₂, w₃) . Shelly reports that a is preferred to b, and that c is preferred to a.

• A)Shelly is risk inclined.
• B)Shelly is risk averse.
• C)Shelly is risk neutral.
• D)Her preferences are inconsistent with expected utility theory.

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Definitions:

Monetary Policy

The process by which a central bank, currency board, or equivalent regulatory committee manages the supply of money and interest rates to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.

Rational Expectations

Rational expectations is an economic theory that assumes individuals form forecasts about the future based on all available information, thereby influencing economic outcomes.

Active Policy

Economic strategies and measures actively implemented by governments to influence the economy, such as fiscal and monetary policies.

Rational Expectations

An economic theory suggesting individuals make predictions about the future based on available information and past experience, influencing their economic decisions.