A Decision-Maker Is Faced with a Choice Between a Lottery $U = \sqrt { I }$

question 22

Multiple Choice

A decision-maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a 70% chance of a payoff of $80, and a guaranteed payoff of $65. If the decision maker's utility function is $U = \sqrt { I }$ what is the risk premium associated with this choice?

• A)$1.59
• B)$2.52
• C)$0
• D)$3.95

Understand the concept and application of blocking in experimental design.

Comprehend the role and necessity of blinding in experiments.

Identify different types of experimental designs.

Grasp the principles behind the use of incentives in experiments and their potential effects.

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Definitions:

Personal Awareness

The conscious knowledge of one’s own character, feelings, motives, and desires, which can influence behavior and interactions.

Self-evaluation

The process of examining and judging one's own performance, behavior, or qualities.

Balanced Placebo Design

A research method used to determine the effect of a drug and the psychological impact of receiving the drug, involving both an active and placebo group.

Expectancy

The belief or anticipation regarding the likelihood that a specific event will occur in the future.