Alex, Who Is Risk-Neutral, Is Looking for a One-Bedroom Apartment

question 46

Multiple Choice

Alex, who is risk-neutral, is looking for a one-bedroom apartment to rent for the month of August while he's on vacation in Seattle. All of the one-bedroom apartments in the neighborhood where he wants to stay are of equal quality, but 70 percent rent for $700 per month, 20 percent rent for $600 per month, and 10 percent rent for $500 per month. The first apartment Alex finds rents for $700 per month. Suppose Alex is risk-averse. If the cost to Alex of searching for another apartment is $40, then will he search for another apartment?

• A)No, because searching for another apartment is a less-than-fair gamble.
• B)Yes, because searching for another apartment is a better-than-fair gamble.
• C)No, because searching for another apartment is a fair gamble.
• D)Yes, because searching for another apartment is a fair gamble.