If an Agent Is Risk Averse and a Principal Is

question 24

Multiple Choice

If an agent is risk averse and a principal is risk neutral, and if the agent pays the principal a fixed fee,

• A)all risk is eliminated.
• B)the risk neutral person bears all the risk while the risk averse person bears none.
• C)the risk averse person bears all the risk while the risk neutral person bears none.
• D)the principal and agent share risk equally.

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Definitions:

Prime Focus

represents the central or primary point of attention, interest, or activity.

Pleasure

An emotional state of happiness, enjoyment, or satisfaction derived from an experience that is desirable or fulfilling.

Social Referencing

The process by which individuals look for cues from others to make sense of ambiguous situations or to determine appropriate behavior.

Uncle

The brother of one's parent or the husband of one's aunt.