Consider the Following Scenario to Answer the Questions That Follow

question 37

Multiple Choice

Consider the following scenario to answer the questions that follow.
Suppose that, in an experimental setting, 100 students are presented with two situations involving risk and return. The students are first asked to choose between Gamble A and Gamble B, where:
Gamble A: The student will receive $1 million with a 100% probability.
Gamble B: The student will receive $1 million with an 89% probability, $5 million with a 10% probability, and $0 million (nothing) with a 1% probability.
The students are then asked to choose between Gamble C and Gamble D, where:
Gamble C: The student will receive $5 million with a 10% probability.
Gamble D: The student will receive $1 million with an 11% probability.
-According to the standard economic model (expected utility theory) ,a student who is risk neutral would choose Gambles ________ because they both have higher expected values than ________,respectively.

• A) A and D; B and C
• B) A and C; B and D
• C) B and C; A and D
• D) B and D; A and C
• E) B and C; A and C

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Definitions:

Intentional Torts

Legal wrongs resulting from actions taken deliberately, intending to cause harm to another person, such as assault or defamation.

Comparative Negligence

A legal principle where damages are apportioned according to the degree of fault of each party in a lawsuit involving negligence.

Contributory Negligence

A defense to negligence whereby the defendant can escape all liability by proving that the plaintiff failed to act in a way that would protect him or her from an unreasonable risk of harm and that the plaintiff’s negligent behavior contributed in some way to the plaintiff’s accident.

Res Ipsa Loquitur

A legal doctrine that suggests negligence is inferred from the very nature of an accident or injury, in the absence of direct evidence.