Stan, Who Is Risk Averse, Can Invest in Project a or Project

question 120

Multiple Choice

Stan, who is risk averse, can invest in project A or project B. Project A returns $3,000 with probability 1/2 and $9,000 with probability 1/2. Project B returns nothing with probability 1/2 and $12,000 with probability 1/2. For Stan, project A has

• A) greater expected wealth and greater expected utility than project B.
• B) lower expected wealth and lower expected utility than project B.
• C) the same expected wealth and the same expected utility as project B.
• D) the same expected wealth but higher expected utility than project B.